Farmers pay inheritance tax on agricultural land, buildings and business assets above the reliefs available, and from 6 April 2026 the main relief is capped for the first time in decades. Full 100% relief now applies only to the first £2,500,000 of combined agricultural and business property per person, with 50% relief above, an effective inheritance tax rate of up to 20% on the excess (gov.uk, as at August 2026, subject to change).
One thing to check on any page you read: the figure is £2,500,000, not the £1,000,000 still quoted in most guides. The £1m cap was the first draft, raised on 23 December 2025, so treat any page citing £1m for a death on or after 6 April 2026 as out of date. This guide describes the law of England and Wales; figures are current as at August 2026 and subject to change.
Do farmers pay inheritance tax in the UK?
Farmers can pay inheritance tax, and more will from 6 April 2026. For decades, qualifying farms passed with nothing to pay because agricultural and business property relief covered them in full with no cap. That unlimited relief ends: full relief is now limited to the first £2,500,000 of combined agricultural and business assets per person, so larger farms face a bill for the first time in a generation.
The charge still only applies above the reliefs and thresholds, not to the whole farm, so a modest holding within the allowances may still pass with nothing to pay. The change matters most to working farms whose land, buildings, stock and machinery add up to more than the new cap, which, given land values, is a large share of commercial family farms.
What changed for farmers on 6 April 2026?
From 6 April 2026, agricultural and business property relief is capped at a combined £2,500,000 per person at 100%, with 50% relief on value above that. Before this date, qualifying assets often attracted unlimited 100% relief. The allowance is transferable between spouses and civil partners, so a farming couple can shelter up to £5,000,000 of qualifying assets in full.
| Feature | Before 6 April 2026 | From 6 April 2026 |
|---|---|---|
| 100% relief cap | No cap on qualifying assets | First £2,500,000 combined per person |
| Relief above the cap | Not applicable | 50% relief, effective rate up to 20% |
| Transferable to a spouse | Not applicable | Yes, up to £5,000,000 per couple |
| Allowance refresh | Not applicable | Every 7 years for individuals |
| Instalment option | Available on land | Interest-free over 10 years for APR and BPR assets |
Source: gov.uk and the House of Commons Library; the £2,500,000 figure was announced on 23 December 2025, replacing the £1,000,000 in earlier drafts. As at August 2026, subject to change.
How much can a farm be worth before inheritance tax is due?
A farm can often pass on £2,500,000 of qualifying agricultural and business property at 100% relief, and the ordinary nil-rate bands still apply to the rest of the estate. A single farmer leaving a farmhouse to their children may add £325,000 of nil-rate band and up to £175,000 of residence nil-rate band. A couple can combine both allowances, though land values do most of the work.
| Allowance | Amount | Notes |
|---|---|---|
| Agricultural and business relief (100%) | £2,500,000 per person | Combined cap; transferable to £5,000,000 per couple. |
| Nil-rate band | £325,000 per person | Applies to the rest of the estate; frozen until 5 April 2031. |
| Residence nil-rate band | Up to £175,000 per person | Where a home passes to direct descendants; frozen until 5 April 2031. |
| Relief above the cap | 50% | Effective rate up to 20% on the taxable half. |
| Standard rate above allowances | 40% | 36% if at least 10% of the net estate goes to charity. |
Source: gov.uk, Inheritance Tax; freeze extended to 5 April 2031 at Budget 2025 (26 November 2025). As at August 2026, subject to change.
One catch: the residence nil-rate band is withdrawn by £1 for every £2 that the estate exceeds £2,000,000, and a working farm often sits well above that line, so the residence band can taper to nothing. Our inheritance tax planning strategies guide sets out the interaction.
Worked example: the tax on a £4,000,000 family farm
This example shows how the new cap works on a real farm value. Take John, a widowed farmer whose late wife left everything to him, so he holds his own £2,500,000 relief plus hers transferred, a combined £5,000,000. His estate is a working farm worth £4,000,000 of qualifying property, passing to his son. The figures are illustrative and rounded, and every farm differs.
- Confirm the relief available. John has £2,500,000 of his own allowance plus £2,500,000 transferred from his late wife, a combined £5,000,000 at 100% relief.
- Compare the farm value to the allowance. The qualifying assets are £4,000,000, which is below the £5,000,000 combined allowance.
- Apply 100% relief. All £4,000,000 of qualifying property is covered in full, so no inheritance tax is due on the farm itself.
- Note the difference for a single allowance. Had John held only his own £2,500,000, £1,500,000 would fall to 50% relief, leaving £750,000 taxable at 40%, a bill of £300,000.
- Remember the instalment option. Any tax on the farm can be paid over 10 annual instalments, interest-free, easing pressure to sell land.
The example shows why the transferable allowance matters: a couple who each preserve their £2,500,000 can pass £5,000,000 with nothing to pay, while a farmer relying on one allowance may face a real bill on the same farm. Recording and preserving both allowances is a central part of tailored estate planning for farming families.
Is the farmhouse and the land actually covered?
Not every part of a farm qualifies, and the conditions catch people out. Agricultural property relief covers agricultural land, growing crops, farm buildings and, in some cases, a farmhouse, but only on agricultural value and only where ownership and occupation tests are met. Let land carries a longer ownership test than owner-occupied land.
| Condition | What it requires |
|---|---|
| Owner-occupied land | Owned and farmed for agricultural purposes for at least 2 years before death. |
| Let land or land farmed by another | Owned for at least 7 years and used for agriculture throughout. |
| Agricultural value only | Relief applies to agricultural value, not any development or hope value on the land. |
| The farmhouse | Must be of a character appropriate to the land and occupied for agriculture; a house too large for the acreage may not qualify. |
| Machinery, stock, non-agricultural value | May instead qualify for business property relief, which shares the same £2,500,000 combined cap. |
Source: gov.uk, agricultural relief on inheritance tax, as at August 2026, subject to change.
Can farm inheritance tax be paid in instalments?
Yes. Inheritance tax on qualifying agricultural and business property can be paid in up to 10 equal annual instalments, and from 6 April 2026 this instalment option is interest-free for APR and BPR assets. It is meant to let families keep farming rather than sell land quickly to meet a bill, though the first instalment is still due at the normal deadline.
- Work out the tax due on the farm after all reliefs and thresholds are applied.
- Elect to pay by instalments on the qualifying assets when the estate is reported to HM Revenue and Customs.
- Pay the first of 10 equal annual instalments by the usual deadline, the end of the sixth month after death.
- Pay the remaining instalments annually, interest-free for qualifying APR and BPR property, and clear any balance if the land or business is sold before they finish.
Source: gov.uk, paying inheritance tax by instalments and the 2026 reform documents, as at August 2026, subject to change.
What people get wrong: gifts of farm assets since 30 October 2024
The most common mistake we see is assuming a lifetime gift of the farm is already safe. Under anti-forestalling rules, gifts of agricultural or business property made on or after 30 October 2024 can be pulled back into the reformed system if the giver dies on or after 6 April 2026 within seven years of the gift, and the transfer can count against the new £2,500,000 allowance.
The ordinary seven-year rule still applies on top. A gift of the farm is a potentially exempt transfer that leaves the estate only if the giver survives seven years, with taper relief on the tax after year three. Giving away the farm while still living in the farmhouse or drawing an income from the land can also breach the gift with reservation of benefit rules, so the gift may not work at all. Because attorneys can make only limited gifts, a plan is best set down while the owner has capacity, one reason a lasting power of attorney matters for farming families. You can see how we work on our pricing page.
What happens to pensions and the farm from April 2027?
From 6 April 2027, unused pension funds are brought into the estate for inheritance tax. Many farmers hold pensions built up off-farm that have passed free of the tax. Once they count as part of the estate, they can push the total above the thresholds and add to a bill that instalments alone will not remove, so a pension once left as a legacy may be better drawn on in retirement (gov.uk, Inheritance Tax on pensions from 6 April 2027).
Frequently asked questions
Do farmers pay inheritance tax in the UK?
Farmers can pay inheritance tax, and more will from 6 April 2026. Qualifying farms once passed free of inheritance tax because agricultural and business property relief had no cap. From 6 April 2026, full 100% relief is limited to the first £2,500,000 of combined agricultural and business assets per person, with 50% relief above, so larger farms now face a bill (gov.uk, as at August 2026, subject to change).
How much can a farm be worth before inheritance tax is due?
A farm can often pass on £2,500,000 of qualifying agricultural and business property per person at 100% relief, transferable to £5,000,000 for a couple. On top of that, the £325,000 nil-rate band and up to £175,000 of residence nil-rate band can apply to the rest of the estate. Land values vary widely, so a working farm can exceed the cap even where a smaller holding passes with nothing to pay.
What is the effective inheritance tax rate on farms over £2.5 million?
Value above the £2,500,000 relief allowance attracts 50% relief rather than 100%, so half remains taxable. At the standard 40% rate on that taxable half, the effective inheritance tax rate is up to 20% on the excess. The tax can be paid over 10 annual instalments, interest-free for qualifying agricultural and business property from 6 April 2026 (gov.uk, as at August 2026, subject to change).
How many farms will be affected by the changes?
Estimates vary widely. After the £2,500,000 allowance was announced on 23 December 2025, the government said around 85% of estates claiming agricultural property relief in 2026 to 2027 are forecast to pay no more inheritance tax as a result of the reforms. Farming bodies such as the NFU and CLA put the number of affected farms much higher, so the figure remains contested (House of Commons Library, as at August 2026).
Does gifting the farm avoid inheritance tax?
Not on its own. A gift of the farm is a potentially exempt transfer that leaves the estate only if the giver survives seven years. Gifts made on or after 30 October 2024 can be pulled back into the reformed rules if the giver dies on or after 6 April 2026 within seven years. Living in the farmhouse or drawing farm income after a gift can breach the reservation of benefit rules, so take advice.