Business and farm relief from April 2026: the £2.5m allowance explained
What changed on 6 April 2026?
Family businesses and farms used to pass on largely free of inheritance tax. From 6 April 2026, full relief is capped at £2.5 million per person, with half relief above that.
This affects Business Relief and Agricultural Relief (farm relief). The cap was first announced at £1 million and raised to £2.5 million in December 2025.
Before and after April 2026
| Before 6 April 2026 | From 6 April 2026 | |
|---|---|---|
| Qualifying business or farm | Full relief, no limit | Full relief on the first £2.5m, then half |
| Tax above the cap | None | Effectively 20% |
| AIM shares | Usually full relief | Half relief, outside the £2.5m cap |
| Married couples | Not applicable | Unused cap passes to the survivor, up to £5m |
| Paying the tax | Usually little or nothing | Over 10 years, interest-free |
Who is affected?
Most families will not pay more. It mainly affects business or farm assets worth over £2.5 million (£5 million for a couple) and AIM shares held to save tax.
Business Relief
Covers trading businesses and shares in unlisted trading companies, usually owned for at least two years. Businesses that mainly hold investments or property do not qualify, which is why most buy-to-let portfolios do not.
Agricultural Relief
Covers farmland, farm buildings and farmhouses that suit the size of the farm, but only their value as farmland, not any extra value as a home. The land usually needs to have been farmed by you for two years, or owned for seven if it is let to a farmer.
How the 50% rate works: an example
Above the cap, half the value is relieved and the other half is taxed at 40%, so the effective rate is 20%.
Owen is single and leaves his engineering business, worth £4 million, to his two children.
| Owen's business | Value |
|---|---|
| Business value | £4,000,000 |
| First £2.5m – full relief | −£2,500,000 |
| Remaining £1.5m – half relief | −£750,000 |
| Value taxed | £750,000 |
| Inheritance tax at 40% | £300,000 |
Before April 2026, this would usually have been tax-free. His children can pay over 10 years, interest-free, which may avoid selling the business. If Owen were a widower whose late wife had not used her cap, he would have £5 million of cover and nothing to pay. Owen is an illustrative example, and the figures ignore his other assets.
Gifts, trusts and paying the tax
The new rules also reach lifetime gifts and trusts.
- Gifts. Passing on a business or farm during your lifetime is tax-free if you live seven years. Gifts made since 30 October 2024 can be caught by the cap if you die within seven years. See our gifting guide.
- Trusts. Business and farm assets in a trust are affected too, and trusts have their own cap. Trustees should check their ten-yearly charges.
- Paying. Tax on qualifying business and farm property can be paid over 10 years, interest-free, as long as each instalment is on time.
What business owners and farmers should do now
If your business or farm is worth over £2.5 million, or you hold AIM shares to save tax, your plans may need updating.
- Get an up-to-date valuation so you know where you stand.
- Review your will so it uses both your cap and your spouse's.
- Think about passing on assets earlier, with advice on capital gains tax.
- Plan how any tax would be paid, such as instalments or life insurance.
- Check your other assets, including your pension from April 2027.
How PJH Estate Planning can help
PJH Estate Planning can review your will and succession plans in light of the new £2.5 million cap, working with you on any tax or financial advice you need. Find out what you could face in your current situation with our free Estate Health Check: 10 quick questions that show any gaps in your plans. You can visit our offices, or we can visit you at home.
Sources
- GOV.UK: What qualifies for Business Relief
- GOV.UK: Agricultural Relief on Inheritance Tax
- GOV.UK: Paying Inheritance Tax in yearly instalments
General information as at October 2026. Not legal, financial or tax advice. These rules are complex, so please speak with us about your own situation.