The Labour Government’s first budget in October 2024 announced some significant changes to the Inheritance Tax (IHT) position on agricultural & business assets.
Agricultural & Business Assets
Land and buildings used for the purposes of agriculture can qualify for agricultural property relief (APR), which exempts the agricultural value of land and buildings from IHT, provided the land has been owned for at least two years and is actively farmed by the owner, or seven years where it is let to a third party to farm under a tenancy entered into after 1 September 1995.
Business relief (BR) exempts from IHT the value of certain business assets, commonly including shares in private companies and interests in businesses carried on in partnership or as a sole trader, provided the shares or business interest has been held for at least two years and the business in question is not one that is mostly involved in investment activities (such as property letting or investing in stocks & shares).
BR can be available on personally owned assets that are used in a qualifying business, but relief in these instances is given at a reduced rate of 50%.
Shares held in companies listed on the Alternative Investment Market (AIM) are also eligible for BR, provided they have been held for at least two years.
There is currently no limit to the value of APR or BR claims an individual or estate can make.
Changes
At the Autumn Budget, Rachel Reeves announced that with effect from 6 April 2026 each individual would only be able to obtain 100% relief from IHT on APR and BR claims with a combined value of £1m. Any value in excess of this amount will be eligible for relief at a rate of 50%, which when subjected to IHT at the normal rate of 40% will effectively mean a reduced IHT rate of 20% will apply on the value of agricultural and business assets above £1m.
The £1m allowance will be non-transferable, so if an individual does not use their full allowance it will be wasted.
Shares held in companies listed on the AIM will no longer be eligible for 100% BR. Instead, relief will be given at 50%, again equating to an overall IHT rate of 20%.
Personally owned assets used in a qualifying business will continue to be eligible for BR at a rate of 50%.
Neither the value of AIM shares nor the value of personal assets used in a business will count towards the £1m BR limit.
