Will you be worse off under the new inheritance tax regulations for farmers and businesses?

On April 6, relief cuts for business and agricultural property went into effect, lowering the amount that farmers and business owners could pass on without paying inheritance tax

Who will take the biggest hit?

Following changes that went into effect at the beginning of the new tax year on April 6, farmers and business owners now have to abide by stringent new regulations regarding the transfer of assets. However, the change will leave some families far worse off than others.

Following the controversial changes to some IHT reliefs this month, beneficiaries of unmarried couples, divorcees, and single farmers and business owners may have to pay hundreds of thousands of pounds more in inheritance tax than they would have if they had been married.

"Married couples can potentially leave up to 6.3 million of qualifying agricultural and business assets free of inheritance tax, but single farmers or divorcees who haven't remarried are limited to a maximum of 3.15 million," stated Sean McCann, chartered financial planner at NFU Mutual. The "

BFIA problems nowadays. . .

What are the new rules for BPR and APR?

The amount of inheritance tax owed is reduced by what are known as business property relief (BPR) and agricultural property relief (APR), which are available to companies and farms.

The government announced plans in the 2024 Autumn Budget to limit the value of businesses and agricultural properties that could be passed on free of inheritance tax to £1 million; anything over that amount would only receive 50% tax relief.

The modification would essentially impose a 20 percent tax rate on the value of inherited farms or businesses that are worth more than £1 million, as inheritance tax is currently levied at 40 percent.

In December 2025, the government changed the policy to raise the cap to 2.5 million in response to pressure from business and farming organizations.

Additionally, it allowed a spouse or civil partner to inherit the allowance on top of the current allowances of 325,000 IHT-free per person plus the nil rate residential allowance of 175,000 per person, increasing the total amount that could be passed on IHT-free to 5.65 million.

However, some groups will not be able to benefit from the more lenient regulations, which will result in significantly higher inheritance tax obligations for their families.

Most affected by the new inheritance tax regulations.

When it comes to inheritance tax planning, married couples and civil partners have a lot of advantages. After the first death, IHT is typically not applied to anything left to the surviving partners.

Along with the 325,000 inheritance tax-free allowance, the survivor is also eligible to receive any unused portion of their late spouse's 2.5 million inheritance tax-free APR and BPR allowance.

The spousal exemption does not apply to unmarried couples, so leaving assets to the surviving partner may result in a higher IHT bill. While the deceased's 2.5 million APR and BPR allowance and 325,000 tax-free allowance would reduce the amount of IHT due in this scenario, only the survivors' allowancesrather than the combined allowances as in the case of a married couplewould be available upon the second death when transferring assets to the younger generation.

Widows and widowers can receive their late spouse's unused 2.5 million 100% APR/BPR allowance, regardless of whether they owned business or agricultural assets; however, divorcees who have not remarried are not eligible for this benefit. Divorcees' beneficiaries are only eligible to receive benefits from the individual with dietary allowances.

Higher inheritance tax obligation.

The IHT bill varies significantly depending on whether the deceased was a widower or a divorcee, as McCann from NFU Mutual has demonstrated with one example.

Consider Steve, who has a farm and business assets valued at £6.5 million. He possesses:

300 acres valued at £3.5 million, machinery and stock valued at £1 million, a farmhouse and buildings valued at £2 million. The table illustrates how Steve's inheritance tax treatment would change based on whether he is a widow or a divorcee.

Strategies for avoiding inheritance tax.

Those impacted by the modifications to business and agricultural property relief may employ certain tactics to either avoid or lower their inheritance tax liability.

Unmarried couples encounter additional challenges because they are not eligible for the tax-free exemption that spouses enjoy. This implies that leaving property to a common law partner may result in an inheritance tax obligation, which would be followed by a second charge upon their death.

According to McCann, "unmarried couples who wish to maximize the amount passed on to younger generations could consider using the 325,000 tax-free allowance and the 2.5 million 100 percent APR and BPR allowance to leave assets to the younger generation on the first death, leaving the survivor free to do the same."

Before making any decisions, it's crucial for single couples who don't want to get married to get advice on the benefits and drawbacks of this strategy, he said.

McCann continued: Prior to the announcement of the inheritance tax proposals, many farmers adopted the strategy of progressively transferring more day-to-day management to the younger generation while retaining ownership of the assets until a later time.

Because they would typically be exempt from inheritance tax if they lived for seven years after giving the gift, the new regulations will encourage many people to transfer their assets earlier.

In order for that to be successful, the farmer must not continue to profit from the assets they donate. They will have to give the new owner market rent if they plan to stay in business, or if they are in a partnership, they will have to lower their profit share to reflect the new ownership.