The 2026 reforms to Agricultural Property Relief (APR) and Business Property Relief (BPR) represent one of the most significant shifts in Inheritance Tax (IHT) planning in over 30 years. From 6 April 2026, estate planning for families with farms, family businesses and asset-rich estates will look markedly different.
This article explains what is changing, who is likely to be affected, and the practical steps you should be taking now.
What are BPR and BPR?
BPR and APR reduce the amount of inheritance tax due on agricultural property or business assets.
BPR
BPR is one of the most important IHT reliefs. The various conditions that apply to the relief are complex, but in broad terms its effect is to reduce the value of certain qualifying business interests for IHT purposes either by half (i.e. the value of the business interest is reduced by 50% for IHT purposes) or completely (i.e. the value of the business interest is reduced by 100% for IHT purposes).
Where it applies at 100% the effect is to remove the qualifying business interest from IHT so that when a transfer of that interest occurs (e.g. on the business owner's death) there is no value for IHT purposes and thus no tax to pay. The policy of BPR is to reduce the risk of IHT charges resulting in the breakup of a viable business in a succession situation.
Qualifying business interests include shareholdings in unquoted trading companies, the business of a sole trader and the interest of a partner of a professional or trading partnership. Typically, the business interest must have been owned for two years before BPR can apply.
APR
Conceptually APR is similar to BPR, and it applies to "agricultural property" and is again at either 50% or 100%. In broad terms it applies to farmland, agricultural buildings (including the farmhouse and farm cottages) and woodlands occupied with the farmland, but only if the various properties are occupied for the purposes of agriculture. Occupation for agricultural purposes needs to have been for at least two years if the owner has been in occupation; otherwise, occupation must have been for seven years.
Generally, the relief applies at 100% where the owner has vacant possession of the agricultural property, can obtain vacant possession within two years or where the property is let by the owner to a tenant on a lease that commenced on or after 1 September 1995. Otherwise, the relief is only available at 50%. The relief only applies to the "agricultural value" of the agricultural property and if the market value of the property exceeds this, APR cannot apply to that excess (although BPR may also be available for owners who themselves are working the farm).
For many families with assets which qualify for the reliefs, prior to the changes on 6 April, the effect of these reliefs has seen their farms and businesses passed to the next generation with 100% relief from IHT, regardless of the value of the underlying assets.
What is changing on 6 April 2026?
A new £2.5 million limit for BPR and APR (increased from £1m as initially announced).
From 6 April 2026, the value of business and agricultural assets that can qualify for 100% relief will be capped at £2.5 million per person. Any value above this allowance can qualify only for 50% relief. This means that, on death, the remaining value of agricultural and business assets which would have historically (pre-6 April 2026) been fully relieved, will now suffer tax at an effective rate of 20%.
Any unused allowance can be transferred to your spouse or civil partner
In a similar way to the nil rate band, if an individual uses less than the full £2.5 million APR/BPR allowance, the remainder can be transferred to their spouse or civil partner. This means a married couple could potentially protect up to £5 million of qualifying APR/BPR assets from inheritance tax.
Certain shares will now only get 50% relief
Shares traded on the Alternative Investment Market (AIM) and certain overseas exchanges will no longer receive 100% BPR. Instead, they will qualify for 50% relief only. This will not be affected by or use any of the £2.5 million allowance.
Paying IHT in instalments
Where tax is due on APR/BPR assets as a result of death, personal representatives will have the option to pay in 10 annual interest‑free instalments. This is particularly helpful where key assets—such as farmland—cannot easily be sold.
How will these changes affect trusts?
For relevant property trusts (most lifetime trusts), the IHT treatment has three elements:-
- Entry charge – when assets are added to a trust, at a rate of up to 20%
- 10-year anniversary charge – a charge on the value of the trust fund at each 10-year anniversary of its creation, at a maximum of 6%
- Exit charge – on the reduction in value of a trust fund when assets stop being relevant property.
100% relief allowance applied to charges within trusts
From 6 April 2026, the availability of BPR and APR will be restricted. The 100% rate of relief will apply only up to a trust’s applicable allowance for qualifying agricultural or business property. Any value above the allowance will attract APR or BPR at the reduced rate of 50%.
For trusts established before 30 October 2024, each trust will have its own allowance of up to £2.5 million for qualifying APR/BPR property at each 10‑year anniversary and exit charge. Only trusts that already held agricultural or business property on or before 30 October 2024 will be able to benefit from their own allowance at the full amount. Any value of qualifying property exceeding the allowance will be reduced by 50%.
For new trusts, or for existing trusts that did not hold agricultural or business property on or before 30 October 2024, the restriction on the availability of 100% relief to £2.5 million applies to all trusts established by the same settlor from 30 October 2024.
The Government has also confirmed that all relevant property trust exit charges will be calculated based on unrelieved values, simplifying the system but potentially increasing the tax charge for some trusts. Where a trust holds agricultural or business property that would previously have qualified for full relief, calculating the charge on an unrelieved basis is likely to result in a higher exit charge than under the current rules.
Trusts that do not hold APR/BPR‑qualifying property — or hold only property that would not have been eligible for 100% relief under the existing regime — will be unaffected by this change.
Changes to relevant property IHT exit charges
APR and BPR have historically reduced the rate of tax for agricultural and business assets. However, the way the rate of tax was calculated created inconsistencies.
For pre-April 2026 exit charges in a relevant property trust, the basis of the valuation varied depending on whether the distribution took place before or after the first ten-year anniversary, as follows:
- For exit charges before the first ten-year anniversary, APR and BPR was not taken into account when calculating the initial rate of tax. This resulted in a higher rate of tax based on unrelieved values. If the property leaving the trust qualified for 100% relief, no IHT was payable. But where all or some of the property subject to the exit charge did not qualify for 100% relief there was more tax to pay, because the calculation of the rate. used unrelieved values.
- Exit charges after the first ten-year anniversary did take into account APR and BPR, which meant that the rate of tax was reduced by the value of relievable property. If the property leaving the trust qualified for 100% relief, no tax was payable. However, where not all of the property qualified for 100% relief, there was less tax to pay than otherwise because the calculation used relieved values.
For post-6 April 2026 exit charges, the calculation will be standardised with all exit charges (whether before the first ten-year anniversary, or afterwards), based on unrelieved values (so that APR and BPR will not be taken into account) when calculating the rate of tax. This results in distributions being treated equally across the trust’s lifetime.
Whilst this standardises the position, tax planning becomes more complicated as trustees will no longer be able to use reliefs to mitigate exit charges between anniversary dates, because the effective rate will continue to reflect the gross value of the trust assets, not their relieved value, after the first 10‑year anniversary.
Could this affect you?
You may be affected if you:
- Own a farm, estate, or agricultural land
- Own any sort of trading or hybrid business, or a stake in one
- Hold AIM-listed shares
- Have created a trust containing APR/BPR assets or you are a trustee or beneficiary of such a trust
- Expect to inherit agricultural or business property
Even if you believe your assets fall below the £2.5 million allowance, it is still important to review your position as asset values change, and older planning arrangements may work differently under the new rules.
What should you do now?
- Review your will and succession plans
- Any will or succession arrangement that relies on APR/BPR should be reviewed to ensure the new limits do not create unexpected tax liabilities.
- Check asset values — a valuation update can help determine whether your estate may exceed the new thresholds.
- Consider reorganising business or farm structures. Transferring assets, updating ownership structures, or reviewing partnership/shareholder arrangements may help ensure the relief is used efficiently.
- Review any existing trusts. Trusts may need restructuring or rebalancing to avoid future periodic or exit charges under the new capped‑relief regime.
- Don’t delay planning
The good news is that with timely advice and proactive planning, most families can still protect the future of their farms, estates, and businesses. The key is understanding how the new allowances work and ensuring your affairs are structured in the most effective way.
The above article is generic commentary and does not constitute legal advice. For more information, or to get legal advice specific to your individual circumstances, please get in touch with one of our trust lawyers. We have experts who can provide advice an all of these areas, covering both the law of Scotland and the law of England and Wales.
Contributors
Associate
Trainee
