The Government has yielded to complaints about some aspects of its Inheritance Tax (IHT) reforms by increasing the relief threshold for farms and businesses from £1m to £2.5m from April 2026.

The Government announced today that the £1m Agricultural and Business Property Reliefs thresholds would rise to £2.5m from April 2026, lifting many farmer-linked estates out of IHT.

The change will allow spouses or civil partners to pass on up to £5m in qualifying agricultural or business assets between them, according to the announcement.

Chancellor Rachel Reeves has received widespread criticism from the farming sector for planning to include farms within her plans to impose IHT on unused pensions from April 2027.

The Government said: “Following the reforms to Agricultural and Business Property Reliefs 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. The change will be introduced to the Finance Bill in January and will apply from 6 April.”

The Govenment said that 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. 

According to Government calculations, today’s announcement is expected will halve the number of estates affected. Most estates will benefit, with inheritance tax cut by hundreds of thousands of pounds for many families, the Government said.

There was no sign, however, of the Government backtracking on its widely criticised plans to impose IHT on unused pensions from April 2027.

Industry experts have welcomed the move.

Danni Hewson, AJ Bell head of financial analysis, said: “Thousands of farmers and family-owned businesses will be celebrating on news the government has announced a retreat on its inheritance tax plans after months of protests. Combined with changes announced during last month’s Budget, it will allow spouses or civil partners to pass on up to £5 million in agricultural or business assets.

“For months the government had been accused of being tone deaf when it came to the impact IHT changes would have on jobs and livelihoods, with many farmers and business owners warning of the potential impact on local communities and supply chains. This decision will feel like an early Christmas present for those who had been forced to consider scaling back investment, selling off assets, or even selling the entire business with the potential for huge job losses.”

Andrew Tully, technical services director at Nucleus, said: “This is a very helpful move for those who intend to pass on business or agricultural assets to family.

“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. And reflects the pressure which the Government has faced as a result of these proposals. However, it is yet another late change to rules with these changes due to be implemented for 6 April 2026."

Paul Townson, a tax partner at BDO, called it “yet another change to IHT from April 2026.”

He said this was the second major concession since the original proposals and just three months before the new rules come into force from 6 April 2026.

He said: “Many of our business and farming clients have been hugely concerned about the new rules with some having been forced into changing their succession plans already. For some, that effort may now prove to have been unnecessary – assuming there aren’t even more changes to the proposals before next April.

“While the increase in the nil band is a sensible move, it’s difficult to understand why these changes have been announced in such an incremental way and within less than a month after the Budget. The stress this whole process will have caused to business owning families should not be underestimated.

“Once the new rules are finally implemented, the Government should commit to a moratorium on any further tightening of the IHT rules for at least 10 years. Then owners could have some certainty over how they can pass on their business to the next generation.”