The inheritance tax threshold for Agricultural and Business Property Reliefs will rise from £1million to £2.5 million from April 2026, the government has confirmed.

The move comes after months of pressure from farmers and business groups following changes announced in last year’s Budget.

The relief allows spouses or civil partners to pass on up to £5million in qualifying agricultural or business assets between them before paying inheritance tax, on top of existing allowances.

Following the reforms announced at Budget 2024, the government has listened to concerns of the farming community and businesses about the reforms.

Having carefully considered this feedback, the government is going further to protect more farms and businesses, while maintaining the core principle that the most valuable agricultural and business assets should not receive unlimited relief.

Raising the threshold will significantly reduce the number of farms and business owners facing higher inheritance tax bills under the reforms, ensuring that only the largest estates are affected.

As a result the number of estates claiming agricultural property relief (including those also claiming business property relief) affected by the reforms in 2026-27 halves from 375 to 185.

Most estates will benefit, with inheritance tax cut by hundreds of thousands of pounds for many families.

The number of estates affected by the reforms claiming only business property relief – excluding those holding only AIM shares – will fall by a third, reducing complexity and ensuring support goes where it’s needed most.

Around 85 per cent of estates claiming agricultural property relief in 2026-27, including those that also claim for business property relief, are forecast to pay no more inheritance tax on their estates.

Environment Secretary Emma Reynolds said: “Farmers are at the heart of our food security and environmental stewardship, and I am determined to work with them to secure a profitable future for British farming.

“We have listened closely to farmers across the country and we are making changes today to protect more ordinary family farms. It’s only right that larger estates contribute more, while we back the farms and trading businesses that are the backbone of Britain’s rural communities.”

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The National Farmers’ Union President Tom Bradshaw said the change would come as a “huge relief” to family farms, after what he described as a “long-fought campaign” to soften the impact of last year’s Budget reforms.

“While there is still tax to pay, this will greatly reduce that tax burden for many family farms, those working people of the countryside,” he said.

Mr Bradshaw described the original proposals as a “shock to the farming community” and warned they created a “pernicious and cruel tax” that trapped “the most elderly and vulnerable people and their families”.

He said farmers had previously been advised to hold on to their land until death to pass it on tax-efficiently, advice that was upended by the reforms.

He welcomed what he called a return of “common sense”, thanking Prime Minister Sir Keir Starmer and the Chancellor for listening, and highlighting the importance of the new spousal transfer rules.

“From the start the government said it was trying to protect the family farm and the change announced today brings this much closer to reality for many,” he said.

Mr Bradshaw also praised Labour backbench MPs who raised concerns, opposition parties for applying pressure, and more than 270,000 members of the public who backed the campaign, adding: “In the end, it was well-reasoned and rational argument that won through.”

To deliver this, the government will introduce an amendment to the Finance Bill 2025 to:

• Increase the threshold at which 100 per cent Agricultural Property Relief and Business Property Relief applies from £1million to £2.5million per estate, with 50 per cent relief continuing to apply to qualifying assets above that level.

• Given the allowance will be transferable between spouses, a surviving spouse or civil partner will be able to pass on up to £5million of qualifying agricultural and business assets tax-free, on top of existing nil‑rate bands. This will apply to people who are widowed and have lost spouses or civil partners before the policy was introduced.