What has changed in Inheritance tax law?
Under the original plans announced by Government in 2024, farms valued at more than £1 million would have become subject to inheritance tax from April 2026. Many within the farming community argued that the proposals failed to reflect the realities of modern agriculture, where high asset values often sit alongside tight margins and limited liquidity.
In a U-turn announced just before Christmas, government officials said they listened to that feedback and have now increased the threshold from £1 million to £2.5 million, which the government says will bring many farms out of that IHT liability. Allowances can also be combined between spouses or civil partners, which means many farming couples may now be able to pass on up to £5 million in agricultural assets free from inheritance tax.
This revision means that fewer estates are likely to face an immediate increase in IHT exposure. However, it does not remove the complexity surrounding how reliefs operate in practice.
Planning beyond farming
While the changes were driven by concerns raised by the farming community, they have broader relevance for anyone with valuable land, business interests or other assets that may be difficult to realise quickly.
Even with the revised thresholds, inheritance tax remains charged at 40% on the value of an estate above the available allowances. The standard nil-rate band and, where applicable, the residence nil-rate band remain frozen, while property and land values continue to rise. As a result, more estates are being drawn into the IHT net, sometimes unexpectedly.
Reliefs such as agricultural property relief (APR) and business property relief (BPR) can significantly reduce the tax burden, but they are not automatic. Qualification depends on a range of factors, including how assets are owned, how they are used and how long they have been held. Where asset values approach or exceed relief thresholds, even relatively small changes in valuation can have a disproportionate impact on the tax position.
The Importance of Reviewing Your Estate Plan
For married couples and civil partners, careful structuring of wills is essential to ensure that reliefs and allowances are fully utilised when one or both of you pass away. This serves as a reminder of the importance of reviewing estate planning regularly to make sure you are making the most of any allowances available to you.
In some cases, a review may highlight the need for updated valuations or a reassessment of whether assets genuinely qualify for relief. In others, it may prompt consideration of lifetime planning options, such as gifting or trust arrangements, to reduce exposure to inheritance tax while maintaining appropriate control.
Inheritance tax planning is rarely one-size-fits-all. The interaction between reliefs, allowances, asset values and family objectives requires careful consideration and specialist advice.
Contact the Private Client team at Downs to see how we can help.
Contact Katie Carter
