When the Labour Government announced changes to Inheritance Tax reliefs in October 2024, they introduced significant reforms to Agricultural Relief (AR) and Business Relief (BR), reshaping how Inheritance Tax applies to farms, businesses, and land-based enterprises. These reliefs have long played an important role in helping family-owned farms and businesses transition between generations with reduced tax exposure. However, the introduction of a cap on these reliefs will bring notable changes to the Inheritance Tax landscape. With just under a year until the changes take effect, now is the time to start considering how best to prepare.
A recap of what’s changing
Currently, qualifying agricultural and business assets can attract up to 100% relief from Inheritance Tax. This has enabled a number of entities, including family farms, trading businesses, and park home enterprises, to be passed on, paying either no tax or significantly reduced tax.
From 6 April 2026, this approach will be limited in the following ways:
- A combined cap of £1 million will apply to assets eligible for 100% Agricultural Relief or Business Relief.
- Any value above the £1 million threshold will only benefit from a 50% relief, resulting in an effective Inheritance Tax rate of 20% (half the usual 40% rate).
- Assets that quality under the pre-April 2026 regime qualify for 50% relief will continue to do so but will not use up any of the £1 million cap.
- The £1 million cap is not transferrable between spouses, potentially doubling the exposure to tax on the second death if proper planning is not undertaken.
Impact on Farms, Parks, and Business Owners
The implications of these changes are particularly acute for land-based and capital-heavy businesses, many of which have relied on Agricultural Relief and Business Relief to ensure generational continuity.
Farms
Traditional family farms that previously enjoyed full Inheritance Tax exemption due to Agricultural Relief may now find substantial parts of their value subject to tax. This could create liquidity pressures for heirs who inherit valuable land but limited cash to pay the Inheritance Tax. The removal of the ability to transfer assets between spouses means that deferring a tax charge until the second death may no longer be the most effective approach.
Holiday and Residential Parks
Park home businesses typically benefit from a mix of Agricultural Relief and Business Relief, particularly when land is actively farmed or used as part of a trading enterprise. Until now, 100% Business Relief has enabled owners to transfer their entire park operations tax-free. From 2026, only the first £1 million of qualifying assets will be fully exempt, with the remainder taxed at 20%. The complexity of mixed-use businesses means that careful structuring will now be essential to maximise relief and avoid unnecessary exposure. The transfer of assets between spouses, previously straightforward, may now result in underused allowances and higher eventual tax bills.
Other Trading Businesses
Owner-managed businesses, particularly those structured as sole traders or partnerships, must also take note of the changes. For many entrepreneurs, the ability to claim 100% Business Relief on their business interests was a critical part of estate planning. Post April 2026, succession plans that don’t consider the new cap may lead to unexpected tax liabilities and challenges for future generations.
Additional Tax Exposure
Also changing on 6 April 2026 are tax reliefs on AIM (Alternative Investment Market) Shares. The Alternative Investment Market (AIM), a sub-segment of the London Stock Exchange (LSE), is designed to support smaller, higher-risk, or high-growth companies in raising substantial capital from the public market. Investment in AIM shares, which was historically seen as a planning tool for mitigating Inheritance Tax, will, after 6 April, only receive 50% relief instead of the current 100%. This change will have a significant impact on investors who rely on AIM-listed companies as a means of reducing Inheritance Tax on their portfolios. Previously, AIM shares, when held for more than two years, could be fully exempt from Inheritance Tax under Business Relief. For families or individuals with significant investments in AIM-listed companies, this could lead to additional tax exposure unless alternative strategies are employed.
It's also worth bearing in mind that, from 6 April 2027, inherited pensions and death benefits payable into an estate will also fall within the scope of Inheritance Tax, creating new areas of exposure for those relying on pension wealth as an inheritance planning tool.
What Should You Do Now?
While full details are still emerging, immediate steps should be considered to assess the impact of these changes and to explore opportunities to reduce exposure. This may include:
- Reviewing Wills and estate plans, especially where Agricultural Relief and Business Relief have previously been relied upon.
- Revisiting business structures, including use of partnerships and trust arrangements to improve tax efficiency.
- Reassessing spousal succession strategies to avoid wasting the £1 million relief cap on the second death.
How Tozers Can Help
At Tozers, our Tax and Succession specialists are closely monitoring the developments and helping clients plan with clarity. We understand the intricacies of land-based businesses, and we’re already working with farm and park owners to reassess their strategies in light of the new rules.
If you own a farm, a holiday or residential park, or run a family business, now is the time to revisit your estate planning. Get in touch with one of our experienced advisors to discuss how the upcoming changes may affect you, and the steps you can take to protect your legacy.
