The inheritance tax landscape for business owners and farming families changed fundamentally on 6 April 2026. After months of controversy, lobbying, and parliamentary debate, the cap on Agricultural Property Relief (APR) and Business Property Relief (BPR) is now law. If you own a business or agricultural property and have not yet revisited your succession planning, the clock is already ticking.
What Changed on 6 April
Until 5 April 2026, qualifying business and agricultural assets could pass on death entirely free of inheritance tax, regardless of value. A family farm worth £10 million, a trading company worth £20 million — all of it could be sheltered under 100% APR or BPR. That regime, which had been in place for decades, is now gone.
From 6 April 2026, 100% relief is only available on the first £2.5 million of combined APR and BPR qualifying assets per individual. Anything above that threshold attracts relief at just 50%, meaning the excess is taxed at an effective rate of 20% (half the standard 40% IHT rate). For a business owner whose qualifying assets are worth £5 million, the additional IHT exposure on death is now around £500,000. At £10 million, it rises to £1.5 million.
The government has confirmed that the £2.5 million allowance is transferable between spouses and civil partners. A married couple can therefore shelter up to £5 million of qualifying business and agricultural property at 100% relief. Any unused portion of the allowance passes to the surviving spouse, in much the same way as the nil-rate band. This is a meaningful concession, but for larger estates it still leaves significant exposure.
Who Is Affected
The headlines have focused on farming families — and rightly so. DEFRA data suggests the average UK farm is now valued well above £2.5 million when land, buildings, and machinery are taken together. But the changes reach far beyond agriculture.
Any owner-manager of an unquoted trading company, any partner in a trading partnership, and any holder of AIM-listed shares qualifying for BPR will feel the impact if their qualifying holdings exceed £2.5 million. Private equity-backed management teams with significant equity stakes, family businesses being held for generational transfer, and property-rich trading operations are all in scope.
HMRC’s own impact assessment estimates that around 500 estates per year will pay more inheritance tax as a result — roughly 185 claiming APR (including mixed APR/BPR claims) and a further 300-plus claiming BPR alone. Those are not large numbers in aggregate, but for the families involved, the sums are life-changing.
The Instalment Option: Welcome but Not Free
Recognising the liquidity challenge, the government has extended the option to pay IHT on qualifying APR and BPR assets by ten annual interest-free instalments. Previously, interest-free instalments were only available on certain categories of property (notably land and controlling shareholdings). The extension to all APR/BPR qualifying assets is a genuine help for estates that are asset-rich but cash-poor.
However, ten years of annual payments still requires careful cash-flow planning. A £500,000 liability means £50,000 per year, every year, for a decade. For a farming business already operating on tight margins, or a family company reinvesting heavily, that is not trivial. The instalment option buys time; it does not eliminate the problem.
What About Trusts?
The changes also affect assets held in trust. Qualifying business and agricultural property held in relevant property trusts will be subject to the same £2.5 million cap on 100% relief. For families who have already settled business assets into trust — a common succession planning technique — this creates a new layer of complexity at the ten-year anniversary charge and on exit from the trust.
Critically, the £2.5 million allowance applies per trust, but anti-avoidance rules prevent taxpayers from simply fragmenting assets across multiple trusts to multiply the allowance. The legislation includes provisions to aggregate related trusts for the purposes of the cap.
Practical Steps for Business Owners
If you have not already taken advice, now is the time. Here is what should be on your agenda:
Revalue your qualifying assets. Many business owners have not had a formal valuation for years. You need to know where you stand relative to the £2.5 million threshold. If you are comfortably below it, the changes may not affect you immediately — but asset values rise, and what is below the threshold today may not be in five years.
Review your will and any existing trust structures. The interaction between the new cap, the transferable allowance between spouses, the nil-rate band, the residence nil-rate band, and any existing trust arrangements is complex. A will that was optimal under the old regime may now be actively harmful. Ensure your solicitor and tax adviser are working together on this.
Consider lifetime planning — carefully. Lifetime gifts of business and agricultural property can still qualify for relief, and the £2.5 million allowance refreshes every seven years. But lifetime planning in this area is fraught with risk: you must survive seven years for the gift to fall out of your estate entirely, and the commercial consequences of transferring business assets during your lifetime need to be weighed against the tax saving. Do not rush into transfers without modelling the full picture.
Model the cash-flow impact. If your estate is likely to face an IHT bill on business assets, work out what that means for the business. Can it fund ten years of instalment payments? Would life insurance be more cost-effective? Is there scope to restructure the balance sheet to improve the position?
Watch for the index-linking. The £2.5 million allowance will be index-linked to CPI from 6 April 2031. Between now and then, the threshold is frozen. In an environment where asset prices are rising, the real value of the allowance will erode before indexation kicks in.
The Bigger Picture
These changes sit alongside a raft of other April 2026 tax measures: the dividend tax increase (basic rate up from 8.75% to 10.75%, higher rate up from 33.75% to 35.75%), the rise in Business Asset Disposal Relief from 14% to 18%, and the long-awaited launch of Making Tax Digital for Income Tax for those with self-employment or property income above £50,000. Taken together, they represent a meaningful tightening of the tax environment for business owners and entrepreneurs.
The APR/BPR cap is arguably the most significant of the lot. It does not just affect the tax bill — it changes how families think about succession, how businesses plan for continuity, and how agricultural land is held and managed. The government’s position is that only the wealthiest estates are affected, and the instalment option provides adequate relief. Many business owners and farmers will disagree.
What is beyond argument is that the old assumption — that a trading business or farm would pass to the next generation free of IHT — is no longer safe. If your qualifying assets are anywhere near or above £2.5 million, you need professional advice, and you need it now.
Talk to Tanous about inheritance tax planning for your business — contact us at tanous.co.uk.