Government announces major uplift to Inheritance Tax Threshold

Emma Pringle, Senior Associate Solicitor at Cartmell Shepherd Solicitors provides an update on the government’s inheritance tax (IHT) reforms and their impact on succession planning for farmers.

After 14 months of campaigning and protests across the country, the government has watered down its proposals to tax inherited farmland.

The new £1 million threshold on IHT relief will be increased to £2.5 million when the changes come into force in April 2026.

Given the allowance will be transferrable between spouses, most family farms will now be able to pass on assets worth up to £5 million without paying IHT.

The announcement was welcomed by many in the farming community. However, concerns remain for the owners of larger farms.

Background to the reforms

Currently, farms are almost entirely protected from IHT by two policies: Agricultural Property Relief (APR) and Business Property Relief (BPR).

However, at the Autumn Budget 2024, the Government introduced a cap of £1 million on APR/BPR. Above this threshold, relief would be reduced to 50% resulting in an IHT charge of 20% on the excess.

The changes were widely criticised as unfair and damaging, with many farming organisations urging the government to change its course.

Two days before Christmas 2025, the government finally yielded, announcing a significant uplift in the planned APR/BPR threshold, to the relief of many farmers and business owners.

How do the changes impact succession planning?

For many, this announcement alleviates much of the threat posed by the October 2024 changes. The £5 million allowance available to married couples will cover the value of many farmers’ estates, meaning their assets can pass tax free to the next generation.

Widows and widowers also benefit from the full £5 million relief, as the transferrable £2.5 million allowance applies to people who are widowed before April 2026.

However, many farmers possess enough assets to push them past the £5 million threshold. For them, the changes to IHT remain a major concern, as despite being asset rich their profit margins are often slim, meaning a large IHT bill could severely affect their businesses.

It’s also important to note that the full £5 million relief is only available to individuals who are married or in civil partnerships; single or divorced farmers are limited to just £2.5 million.

How should farmers prepare?

With unlimited APR/BPR coming to an end in April, it’s vital that farmers understand the value of their assets and put plans in place to ensure they leave a thriving legacy for future generations.

For farmers whose estates are likely to incur IHT, there a number of options available, such as making lifetime gifts (ideally coupled with life insurance); the use of trusts (although they are not suitable in every case); and building any potential tax liability into your business plan.

We’re here to help

Cartmell Shepherd’s leading Wills, Probate and Inheritance team advises on all aspects of estate planning and has a specialist knowledge of agricultural estates, working closely with the firm’s specialist Agriculture team.

If you require advice on succession planning or for an initial chat, email Emma here or call 01434 320362.