Farmers can pay inheritance tax, and from 6 April 2026 more farming estates are expected to. Agricultural property relief and business property relief still give 100% relief, but only on the first £2.5 million of combined qualifying property per person, with 50% relief above that (gov.uk, announced 23 December 2025, subject to change).
For decades, land and farming businesses that qualified for full relief often passed down free of inheritance tax. The rules have changed. This guide sets out the new £2.5 million allowance, how it sits alongside the ordinary inheritance tax thresholds, what happens to the farmhouse and to pensions, and the role of lifetime gifts. It covers the law of England and Wales, and figures are current as at August 2026 and subject to change.
Do farmers pay inheritance tax?
Farming assets are not automatically exempt from inheritance tax. The reason many farms passed down without a bill was agricultural property relief (APR) and business property relief (BPR), which could reduce the taxable value of qualifying land, buildings and business assets by up to 100%. Those reliefs still exist, but from 6 April 2026 the 100% band is capped, so some larger farming estates that would once have passed down free of inheritance tax may now face a bill on the value above the allowance (gov.uk, announced 23 December 2025, subject to change).
The 2026 reform to agricultural and business property relief
From 6 April 2026, a single combined allowance of £2.5 million per person applies to agricultural and business property together. Qualifying property within that allowance keeps 100% relief. Qualifying property above it receives 50% relief, which means the balance is taxed at an effective rate of up to 20% rather than the standard 40% (gov.uk, announced 23 December 2025, subject to change). The £2.5 million figure replaced the £1 million allowance first announced at the Autumn Budget 2024.
The allowance is also transferable between spouses and civil partners. Any unused portion can pass to the survivor, so a couple may between them shelter up to £5 million of qualifying agricultural and business property at 100% relief, on top of the ordinary nil-rate bands (gov.uk, announced 23 December 2025, subject to change).
| Feature | Position from 6 April 2026 |
|---|---|
| 100% relief allowance (per person) | First £2,500,000 of combined agricultural and business property |
| Relief above the allowance | 50% (effective rate up to 20% on the excess) |
| Transferable to spouse or civil partner | Yes, up to £5,000,000 per couple |
| Replaced figure | The £1,000,000 allowance announced at Autumn Budget 2024 |
Source: gov.uk and gov.uk agricultural relief guidance, as at August 2026, subject to change.
How the relief works in practice
Whether property qualifies at all depends on the conditions for each relief, including minimum ownership periods and how the land or business is used. Agricultural relief generally applies to the agricultural value of farmland and can require the property to have been owned and occupied for farming for a set period before death (gov.uk, as at August 2026, subject to change). Business relief can cover the wider business value where agricultural relief does not reach. The interaction between the two reliefs, and how the single £2.5 million allowance is shared across them, is a detailed area that turns on the facts of each farm.
The ordinary inheritance tax thresholds still apply
Agricultural and business relief sit on top of the general inheritance tax framework, so the standard thresholds matter too. Each person has a nil-rate band of £325,000, and a residence nil-rate band of up to £175,000 where a home passes to direct descendants. The standard rate is 40%, reduced to 36% where at least 10% of the net estate passes to charity (gov.uk, as at August 2026, subject to change).
| Allowance or rate | Level (August 2026) |
|---|---|
| Nil-rate band | £325,000 |
| Residence nil-rate band | Up to £175,000 |
| Standard rate | 40% |
| Reduced rate (10%+ to charity) | 36% |
| Residence band taper starts at | £2,000,000 of estate value |
Source: gov.uk/inheritance-tax, as at August 2026, subject to change. The residence band is withdrawn by £1 for every £2 by which the estate exceeds £2,000,000, which can matter for higher-value farms. The nil-rate band, residence nil-rate band and £2 million taper threshold are frozen until 5 April 2031, extended by a further year at Budget 2025 (gov.uk, Budget 2025, 26 November 2025, subject to change).
Because farm values often run into the millions, the £2 million taper can reduce or remove the residence nil-rate band for larger estates. This is one reason the ordinary thresholds and the agricultural reliefs are best considered together rather than in isolation, and it is covered further in our inheritance tax guide.
What about the farmhouse?
The farmhouse is treated differently from the surrounding land. Agricultural relief applies to the agricultural value of a farmhouse only where the house is of a character appropriate to the farm and is genuinely occupied for the purposes of farming the land (gov.uk, as at August 2026, subject to change). Where those conditions are not met, the farmhouse may fall outside agricultural relief and be assessed like any other residential property, drawing instead on the nil-rate band and, if a direct descendant inherits, the residence nil-rate band. How a farmhouse is owned, occupied and recorded can therefore affect the outcome.
Pensions and farming estates from April 2027
A further change is on the way. From 6 April 2027, most unused pension funds and death benefits are due to be brought within the value of the estate for inheritance tax, a change announced at the Autumn Budget 2024 (gov.uk, 26 November 2025, subject to change). For farming families who hold pensions alongside land and business assets, a pension that once sat outside the estate may in future add to its taxable value.
Gifting the farm during your lifetime
Passing farmland or a farming business to the next generation during your lifetime is one route some families consider, and the ordinary gifting rules apply. A gift to an individual is generally a potentially exempt transfer, which falls outside the estate if you survive for seven years. Taper relief can reduce the tax due on a gift made between three and seven years before death, though it reduces the tax on the gift rather than its value (gov.uk, as at August 2026, subject to change).
| Gift allowance or exemption | Amount (August 2026) |
|---|---|
| Annual exemption | £3,000 per tax year |
| Small gifts exemption | £250 per person |
| Wedding or civil partnership gift (to a child) | £5,000 |
| Potentially exempt transfer | No limit, exempt if you survive seven years |
Source: gov.uk/inheritance-tax/gifts, as at August 2026, subject to change.
Lifetime transfers of a working farm carry practical questions too, from who controls the land to how income is shared and whether reliefs are preserved. Succession, capacity and tax tend to overlap here, which is why a lasting power of attorney and an up-to-date will often form part of the same conversation. Our guide on how to write a will covers the will side in more detail.
Farmers in Scotland and Northern Ireland
Inheritance tax is a UK-wide tax, so the £2.5 million allowance and the national thresholds apply across the United Kingdom. Succession law, however, differs. Scotland has its own rules, including legal rights that can entitle a spouse and children to a fixed share of an estate, and it uses confirmation rather than a grant of probate. Northern Ireland has a separate but broadly similar system to England and Wales. Where a farm straddles more than one jurisdiction, or where land is held across borders, the succession rules of each nation can apply to different parts of the estate.
The combined 100% relief a married couple or civil partners may pass on where the £2.5m allowance is fully transferred (gov.uk, announced 23 December 2025, subject to change).
Frequently asked questions
Do farmers pay inheritance tax in the UK?
Farming assets are not automatically exempt. Agricultural property relief and business property relief can reduce the taxable value of qualifying land and business assets, but from 6 April 2026 the 100% relief is limited to the first £2.5 million of combined qualifying property per person, with 50% relief above that (gov.uk, as at August 2026, subject to change). Whether tax is due depends on the value of the estate and the reliefs and thresholds that apply.
How much can a farmer pass on before inheritance tax in 2026?
From 6 April 2026, an individual can shelter up to £2.5 million of qualifying agricultural and business property at 100% relief, on top of the £325,000 nil-rate band and, where a home passes to direct descendants, up to £175,000 residence nil-rate band (gov.uk, as at August 2026, subject to change). A couple may combine their allowances. The exact position depends on the assets and how they qualify.
What is the £2.5 million agricultural property relief allowance?
It is a single combined allowance covering agricultural and business property together. Qualifying property within the £2.5 million receives 100% relief from inheritance tax; qualifying property above it receives 50% relief, taxed at an effective rate of up to 20% (gov.uk, announced 23 December 2025, subject to change). It replaced the £1 million figure announced at the Autumn Budget 2024.
Is agricultural property relief transferable between spouses?
Yes. From 6 April 2026 any unused part of the £2.5 million allowance can pass to a surviving spouse or civil partner, so a couple may between them shelter up to £5 million of qualifying property at 100% relief (gov.uk, announced 23 December 2025, subject to change). This differs from the wording on earlier gov.uk pages dated 30 October 2024.
Does inheritance tax apply to the farmhouse?
Agricultural relief applies to the agricultural value of a farmhouse only where the house is of a character appropriate to the farm and is occupied for farming the land (gov.uk, as at August 2026, subject to change). Where those conditions are not met, the farmhouse may be treated like other residential property and rely on the ordinary nil-rate bands instead.
Are pensions included in a farmer's estate for inheritance tax?
From 6 April 2027, most unused pension funds and death benefits are due to be brought within the value of the estate for inheritance tax, a change announced at the Autumn Budget 2024 (gov.uk, 26 November 2025, subject to change). Farming families who hold pensions alongside land may wish to factor this into their planning.