What is APR and how does it work?
Inheritance tax reliefs like APR (agricultural property relief) reduce the amount of tax farmers and landowners have to pay when farmland is passed to the next generation after a death.
This helps farms stay within the family to allow them to continue to look after the countryside and produce food for the country.
What did the government announce in 2024?
In its October 2024 Budget, the government announced it would change the rules for inheritance tax, including APR and BPR (business property relief) on farmland and business assets.
Above a £1 million threshold, only 50% inheritance tax relief would be applied. This would have meant an effective rate of 20% on agricultural assets valued over £1 million – although there are other existing reliefs (nil rate bands) that can also be used.
Nil rate bands explained: Currently, the first £325,000 of assets in any individual’s estate are exempt from inheritance tax; this is known as “the nil rate band”. This is available to everyone – whether they are a farmer or not.Some estates may also be eligible for the residence nil rate band, covering an additional £175,000 of assets. This relief intends to help individuals pass on a family home to their direct descendants. This relief is tapered for estates with a net value over £2 million. Estates over £2.35 million have no access to the residence nil rate band.
What has changed today?
Today, the government announced it would increase the tax free allowance from £1 million to £2.5 million. The effective tax rate of 20% on assets valued over £2.5 million remains.
For married couples, this change could produce a tax saving of as much as £600,000, due to an increase in their combined tax-free allowances from £2m to £5m.
What will be the impact of this new change?
The tax rules, as announced in Autumn 2024, would have forced many farmers to sell their family farms to pay the inheritance tax bill. The increase in the tax-free allowance from £1 million to £2.5 million will significantly reduce, or in some cases eliminate, the tax burden for family farms.
Spousal transfer of APR/BPR allowance
Ahead of the changes announced today, NFU campaigning had already secured a small but important change. During the November 2025 Budget, the Chancellor announced a change to the rules which will allow those farmers who are married, or have deceased spouses, to transfer their inheritance tax allowance to one another if one of them dies having not used their allowance.
Currently, the first £325,000 of assets in any individual’s estate are exempt from inheritance tax; this is known as “the nil rate band”. This is available to everyone – whether they are a farmer or not.
If you leave assets to your spouse or civil partner, they are usually exempt from inheritance tax. Because you are transferring ‘across’ to your spouse, rather than ‘down’ to your children, you haven’t used your nil-rate band, so the band is transferred to the surviving partner. For example, if the husband dies first, the wife will have two nil rate bands when she dies – hers and her husband’s.
Originally, the family farm tax didn’t allow the APR/BPR allowance to transfer between spouses. So, if the wife died first and left everything to her husband, he would still only have one allowance to pass on to his children.
The Chancellor changed this in the last Budget. The allowance could be transferred between spouses. This change applies to the new higher allowance of £2.5 million.
This means a farmer doesn’t have to leave £2.5 million of agricultural assets to their children when they die. They can leave it to their spouse, and the spouse can use both allowances – £2.5 million from their partner and £2.5 million of their own – when passing assets to their children. A combined £5 million of tax-free allowance.
This will offer some relief to married farmers who die unexpectedly with young children.
If the first death is before 6 April 2026, it will be assumed the entirety of the allowance will be available for transfer to the surviving spouse or civil partner. This will make the rules fairer for widows and widowers, and reduce complexity.
What will the updated changes mean for farming?
APR has encouraged investment in farming. It means people who buy farmland must make sure it is farmed, and so rent it out to young farmers, giving them a chance to start their own businesses.
The increase in the allowance announced today will reduce the impact on family farms. Because the higher allowance applies to business property relief, it will also benefit businesses other than farming, such as other family-run businesses like garages, shops, dealerships.
Larger businesses and landowners will still be paying more IHT than they would have under the old rules.
The higher allowance is good news for family farms, however, the 20% effective rate above this allowance will continue to discourage people from buying farmland and renting it out to farmers. This could lead to less land being available for farming and more being used for other purposes.
