Business Relief and Agricultural Relief for Inheritance Tax: The 2026 Changes

Business relief (often called business property relief, or BPR) and agricultural property relief (APR) are two of the most valuable inheritance tax reliefs. They reduce the value of qualifying business and farming assets when working out inheritance tax, either on death or on certain lifetime transfers. Where an asset qualifies for the top rate, relief is 100%, meaning that value passes free of the 40% inheritance tax charge entirely.

Business relief applies to genuine trading businesses and interests in them. Agricultural relief applies to the agricultural value of land and buildings used for farming. The two reliefs can overlap: a working farm often qualifies for agricultural relief on its agricultural value and business relief on any excess business value, such as farm machinery, diversified trading activities or development potential.

Relief is given at one of two rates, currently 100% or 50%, depending on the type of asset and how it is held. From 6 April 2026 those rates still exist, but a new allowance limits how much qualifying value can attract the 100% rate. That reform is the main subject of this guide. Inheritance tax itself is charged at 40% on the taxable estate above the nil-rate band, or 36% where at least 10% of the net estate passes to charity.

Not every business or landholding qualifies. Both reliefs are targeted at active trading and farming, and both require a minimum ownership period. Understanding the boundaries matters because HMRC scrutinises relief claims closely.

Business relief covers, broadly:

• A business or an interest in a business, such as a sole trade or a partnership share (100% relief).
• Shares in an unlisted trading company (currently 100%, dropping to 50% from 6 April 2026 for AIM and most other unlisted shares, see the next section).
• Shares giving control of a listed company (50% relief).
• Land, buildings, plant or machinery used mainly for the business and owned personally but used by a company you control or a partnership you are in (50% relief).

The general rule under section 106 of the Inheritance Tax Act 1984 is that the property must have been owned for at least two years immediately before the transfer. Section 107 allows replacement property to count, provided the original and replacement together were owned for at least two of the five years before the transfer.

Business relief is denied for businesses that consist wholly or mainly of dealing in securities, stocks or shares, dealing in land or buildings, or making or holding investments. This is why buy-to-let portfolios and most property investment businesses do not qualify. HMRC also strips out excepted assets under section 112: assets not used mainly for the business in the two years before the transfer, and not needed for future business use, such as surplus cash or a private holiday home held in the company.

Agricultural relief covers the agricultural value of land or pasture used to grow crops or rear animals, together with related farmhouses, cottages and farm buildings of a character appropriate to the land. The 100% rate applies where the owner farmed the land themselves, where it was let on a tenancy starting on or after 1 September 1995, or under short-term grazing licences. Otherwise 50% applies. The property must have been owned and occupied for agricultural purposes for two years if farmed by the owner, or owned for seven years if farmed by someone else, such as a tenant. Agricultural relief covers only the agricultural value, so any development or amenity premium is left out and must rely on business relief if it qualifies at all.

From 6 April 2026 the 100% rate of business and agricultural relief is capped. Each person has a single combined allowance of GBP 2,500,000 of qualifying property that can attract 100% relief. Qualifying value above the allowance receives 50% relief instead. Because the unrelieved half is then taxed at 40%, the effective inheritance tax rate on that excess is up to 20%. Any such tax can generally be paid in interest-free instalments over ten years for qualifying business and agricultural property.

The figure moved during the reform. At the October 2024 Budget the allowance was announced at GBP 1,000,000 per person and stated to be non-transferable. On 23 December 2025 the government announced that it would rise to GBP 2,500,000 and be made transferable between spouses and civil partners, and this is legislated in Finance Act 2026. The GBP 2,500,000 figure is the current, confirmed position for 2026/27. Note that some standing GOV.UK reform pages still display the original GBP 1,000,000 non-transferable figure and had not all been updated at the time of writing, so the higher figure should be treated as the operative one and confirmed against the latest guidance.

Because the allowance is now transferable, any unused portion can pass to a surviving spouse or civil partner, and this applies even where the first death occurred before 6 April 2026. In practice a married couple can therefore shelter up to GBP 5,000,000 of qualifying business or agricultural property at 100% between them, on top of their nil-rate bands. The allowance is applied only to property that would otherwise get 100% relief; assets that only ever qualified for 50% relief do not use it up. The GBP 2,500,000 allowance is itself fixed at that level until 5 April 2031.

The reform reaches back for anti-forestalling purposes. The new rules apply to lifetime gifts made on or after 30 October 2024 where the donor dies on or after 6 April 2026. Gifting business or farming assets after that date does not escape the cap if death occurs within the relevant window.

The reform hits AIM investors hardest. From 6 April 2026 business relief on shares that are not listed on a recognised stock exchange falls from 100% to 50% in all circumstances. This covers shares admitted to trading on markets such as AIM that are designated not listed, and similar unlisted or foreign markets. Crucially, these shares cannot use the GBP 2,500,000 allowance at all: the 50% rate applies from the first pound, giving an effective inheritance tax rate of up to 20% on the qualifying holding. The 23 December 2025 increase to GBP 2,500,000 did not change this, as the government confirmed that the treatment of AIM shares was unaffected by that announcement.

This is a significant shift for the many portfolios built specifically around AIM shares as an inheritance tax shelter. Those holdings previously offered 100% relief after two years of ownership. From 6 April 2026 the same shares, held for the same period, deliver only half that relief. The two-year holding condition and the trading-company requirements still apply, so an AIM holding that fails those tests gets no relief at all.

Shares in private unlisted trading companies, such as a family company, still fall within the reformed regime. They too are not on a recognised exchange, but unlike AIM they can benefit from the GBP 2,500,000 combined allowance, so the first GBP 2,500,000 of qualifying value can still attract 100% relief before the 50% rate applies above it. The distinction between an unlisted private company that can use the allowance and AIM shares that cannot is a fine but expensive one, and the exact classification of any holding should be confirmed with an adviser.

For most modest estates the reform changes nothing. The government estimates that the large majority of estates claiming agricultural relief will still pay no more inheritance tax, because their qualifying assets sit within the GBP 2,500,000 allowance. The impact concentrates on higher-value farms and family businesses.

Consider a working farm worth GBP 4,000,000 in qualifying agricultural property owned by one person who dies after 5 April 2026. The first GBP 2,500,000 attracts 100% relief. The remaining GBP 1,500,000 attracts 50% relief, leaving GBP 750,000 exposed to inheritance tax at 40%, a charge of GBP 300,000 before any other allowances. Under the old rules the same farm would have passed entirely free of inheritance tax. The nil-rate band and residence nil-rate band may reduce the charge further, and the tax can be spread over ten interest-free instalments, but a real liability now arises where none existed before.

Family trading companies face the same maths. Owners whose businesses are worth well over GBP 2,500,000, or couples who cannot easily equalise ownership, should model their exposure now. Two further pressures compound the effect: the nil-rate band (GBP 325,000) and residence nil-rate band (GBP 175,000) remain frozen until 5 April 2031, so more estates drift into charge over time; and from 6 April 2027 most unused pension funds are brought into the estate for inheritance tax, adding to the taxable value that sits above the relief cap. Careful, joined-up planning matters more than ever.

There is no single fix, and some routes that looked attractive have been closed by the anti-forestalling rule. Sensible options to discuss with an adviser include:

• Equalising ownership between spouses so that both GBP 2,500,000 allowances are used, potentially sheltering up to GBP 5,000,000 of qualifying value at 100%.
• Reviewing AIM-heavy portfolios held for inheritance tax reasons, since the shelter now delivers only 50% relief; the wider investment case, not just the tax, should drive the decision.
• Checking the two-year ownership clock and the trading status of each asset, and removing excepted assets such as surplus cash from a company balance sheet before a transfer.
• Considering lifetime gifts and trusts, bearing in mind the seven-year rule and that gifts on or after 30 October 2024 are already caught by the cap if death follows on or after 6 April 2026.
• Making sure life cover is in place to fund an inheritance tax bill on the value now sitting above the allowance, so the business or farm does not have to be sold to pay it.

Trusts have their own version of the allowance. A trust holding relievable business or agricultural property has a GBP 2,500,000 allowance applied to its ten-year anniversary (principal) and exit charges under the relevant property regime, where the maximum ten-year charge is up to 6% of the value above the available reliefs and nil-rate band. Trusts set up before 30 October 2024 each keep a separate allowance, but where a settlor creates more than one trust on or after that date the single allowance is divided between those trusts rather than multiplied in the way earlier planning assumed. The rules for trusts are technical and the interaction with the ten-year charge should be confirmed case by case. Our related guide on trusts and inheritance tax explains the relevant property regime in more detail.

Some of the finer points, including the precise mechanics of the trust allowance and how it interacts with settlements made at different times, are still bedding in and should be treated as to confirm against the latest HMRC guidance for any specific situation. A Global Compliance Manager engagement with Horizon can model your exposure, coordinate the estate, business, pension and trust position together, and keep the plan current as further guidance emerges.