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From 6 April 2026, Agricultural Property Relief (APR) and Business Property Relief (BPR) no longer apply without limit. The first £2.5 million of qualifying agricultural and business property in an estate continues to receive 100% relief from inheritance tax. Anything above that figure receives 50% relief, producing an effective inheritance tax rate of up to 20% on the excess.
The headline allowance was originally set at £1 million when the reform was announced in the Autumn Budget 2024. The government raised it to £2.5 million on 23 December 2025, and that figure was enacted in the Finance Act 2026. The change is law. The planning question for family business owners is no longer whether the cap is coming, but how to position around it.
What the £2.5 million cap actually does
The cap restricts 100% relief, not the reliefs themselves. APR and BPR continue to exist, with the same qualifying conditions as before. The first £2.5 million of qualifying property per individual is fully relieved. Value above that threshold is reduced by 50% for inheritance tax purposes, which on a 40% headline rate of inheritance tax produces an effective 20% charge on the excess. A combined allowance is the right way to think about it. APR and BPR share a single £2.5 million pot. An estate that uses £1 million of APR on farmland has £1.5 million of allowance left for qualifying business interests. The allowance refreshes every seven years for individuals, and every ten years for trusts. It will be index-linked to the Consumer Prices Index from 6 April 2031, but only if a future government enacts the necessary statutory instrument.
Who is actually affected
The government estimates up to 1,100 estates across the UK will pay more inheritance tax in 2026 to 2027 as a result of these reforms. Of those, up to 185 are estates claiming APR (including those also claiming BPR). HMRC describes these figures as static estimates that assume no change in behaviour, and says they should be viewed as a maximum rather thana forecast.
In practice, the family business owners most exposed are those whose qualifying trading company shares, partnership interests or working farm assets exceed £2.5 million in value, or whose combined holdings with a spouse exceed £5 million. The reform also reaches anyone who has gifted business or agricultural property since 30 October 2024, because of the transitional rules described below.
Spousal transferability and what it means in practice
Any unused part of the £2.5 million allowance can be transferred to a surviving spouse or civil partner, in the same way that the standard nil-rate band is transferable. A married couple can therefore shelter up to £5 million of qualifying agricultural or business property at the 100% rate, before the standard nil-rate bands and other exemptions are applied.
There is an important concession for widows and widowers. If the first death was before 6 April 2026, it is assumed the deceased had a full £2.5 million allowance available to transfer. The surviving spouse therefore inherits the full £2.5 million regardless of when their partner died. This removes the need for retrospective rearrangement of estates settled under the old rules.
The transferability point reverses one of the most damaging features of the reform as originally announced. Under the version put forward at the Autumn Budget 2024, the £1 million allowance was not transferable, meaning standard “everything to spouse” wills risked wasting the first allowance entirely. Transferability was introduced at Budget 2025 in respect of the then £1 million figure, and the government confirmed at the 23 December 2025 announcement that it continues to apply alongside the higher £2.5 million allowance.
Wills should still be reviewed, however, because pre-October 2024 drafting was often the other way round (qualifying property to children, non-qualifying to spouse), and that drafting can produce unexpected results under the new rules.
AIM shares: a separate, harder change
Shares listed on the Alternative Investment Market and similar exchanges that are admitted to trading but are not “listed” on a recognised stock exchange face a different rule. From 6 April 2026 they qualify for 50% BPR only. The £2.5 million allowance does not apply to them, and AIM holdings do not use up that allowance. The practical consequence is that an investor who built an AIM portfolio specifically for inheritance tax planning now faces an effective 20% charge on those holdings from the first pound of value, with no 100% slice at all. For some clients this materially changes the rationale for holding AIM stocks at all. Liquidity, risk and replacement strategies need to beconsidered together, not just the tax position in isolation.
A worked example: the £4 million family company
Consider a family company with shares worth £4 million owned solely by the founder. The founder dies on 1 May 2026, having made no lifetime gifts since 30 October 2024. The shares qualify for BPR (the company is a trading company, the shares have been held for more than two years, and there is no excepted assets issue). Under the previous rules, the entire £4 million would have qualified for 100% BPR and produced no inheritance tax on the shares. Under the rules in force from 6 April 2026, the position is:
The first £2.5 million attracts 100% relief and is fully exempt. The remaining £1.5 million attracts 50% relief, leaving £750,000 exposed to inheritance tax at 40%. The inheritance tax on the shares is therefore £300,000, before considering the nil-rate bands and any other reliefs.
If the founder had been married and the £2.5 million allowance was available to transfer to a surviving spouse, the same shareholding could have passed through both estates with the full £5 million combined allowance applied, producing no inheritance tax on the shares at all.
The structure of ownership, the wording of the wills, and the timing of any lifetime planning all change the answer.
The transitional rules: gifts from 30 October 2024
Anti-forestalling provisions apply to lifetime transfers made between 30 October 2024 and 5 April 2026. If the donor dies on or after 6 April 2026 and within seven years of the gift, the new rules apply to the gift. The £2.5 million allowance is applied retrospectively in date order, starting with the earliest qualifying gift made on or after 30 October 2024. The transitional rules apply to gifts to individuals (potentially exempt transfers) and to settlements into trust.
The implication is that an owner who gifted £3 million of qualifying shares in late 2024, expecting unlimited 100% relief, now needs to survive seven years from the gift date to remove that value from their estate entirely. If they die within seven years and after 5 April 2026, the new £2.5 million cap applies to that gift. Taper relief on the inheritance tax may reduce the bill if death occurs between three and seven years after the gift, but the cap itself is not removed.
Trusts: a separate £2.5 million allowance, with traps
Trusts have their own £2.5 million allowance, refreshing every ten years rather than every seven. Trusts that held qualifying agricultural or business property on or before 29 October 2024 each have a separate £2.5 million allowance. Trusts created on or after 30 October 2024 by the same settlor share a single £2.5 million allowance between them, allocated chronologically.
Two practical points often go missed. First, the option to pay inheritance tax in ten annual interest-free instalments has been extended to all assets qualifying for APR or BPR. This matters where the trust holds illiquid assets and the alternative would be a forced sale.
Second, where a trust is wound up, any allowance allocated to that trust is lost rather than released for future settlements. Existing trust structures therefore deserve a fresh look before any restructuring decision is taken.
What family business owners should be looking at now
The cap is in force, but the planning options have not closed. A short list of priorities, none of which is universal:
A current valuation of the qualifying assets matters more than it did before. Where 100% relief was the answer regardless of value, an approximate figure was often enough. Now the split between the 100% slice, the 50% slice and any non-qualifying assets directly drives the inheritance tax bill, and HMRC will expect supporting valuations. Wills drafted before 30 October 2024 should be reviewed as part of a wider review, particularly where the standard drafting was “qualifying assets to children, non- qualifying to spouse.” That construction may now waste the 100% allowance or produce an unexpected charge. Liquidity planning matters because the inheritance tax falls due six months after death and the qualifying assets are often the most illiquid part of the estate.
Whole-of-life cover written in trust is a common solution, but only where the figures and the family circumstances support it.
Lifetime gifting, family investment companies, restructuring of share classes, and the use of trusts all remain on the table for business owners who want to model the options properly. None of them is a default answer, and several of them carry their own capital gains tax and stamp duty consequences that need to be modelled together with the inheritance tax position.
FAQ
Does the £2.5 million cap apply to each individual or to a married couple jointly?
The £2.5 million allowance is per individual. Spouses and civil partners each have their own allowance, and any unused portion on first death can be transferred to the survivor. Acouple can therefore shelter up to £5 million of qualifying agricultural and business property at 100% relief. If the first spouse died before 6 April 2026, HMRC assumes the full £2.5 million was available to transfer, so widows and widowers are not penalised by historic timing.
Are AIM shares still useful for inheritance tax planning after 6 April 2026?
AIM shares now qualify for 50% BPR rather than 100%, and they sit outside the £2.5 million allowance entirely. They produce an effective inheritance tax rate of around 20% on the full value, rather than the 0% they previously offered. For some investors that still beats holding cash, but the case for AIM as a pure inheritance tax planning vehicle is materially weaker than it was. The right comparison is now AIM against other planning routes, not AIM against doing nothing.
If I gifted shares in 2024 or 2025, am I locked into the old uncapped relief?
Not automatically. Gifts of qualifying property made between 30 October 2024 and 5 April 2026 fall under transitional anti-forestalling rules. If you survive seven years from the gift, the value falls outside your estate as normal. If you die on or after 6 April 2026 and within seven years of the gift, the new £2.5 million cap applies to that gift. Taper relief on the inheritance tax can reduce the bill if death is between three and seven years after the gift.
Will the £2.5 million figure increase over time?
The legislation provides for the allowance to be index-linked to the Consumer Prices Index from 6 April 2031. Until then it is fixed at £2.5 million. Indexation is not automatic in practice. A future government would need to enact the necessary statutory instrument to apply the uplift, so the cap should be modelled as £2.5 million in real terms for planning purposes today.
Can the inheritance tax on the qualifying assets be paid in instalments?
Yes. The option to pay inheritance tax in ten equal annual instalments, interest-free, applies to all assets qualifying for APR or BPR, whether at 100% or 50%. The first instalment is due six months after the end of the month of death. The interest-free status depends on the assets retaining their qualifying status and on payments being kept on schedule.
Speak to us
If your business or agricultural assets are likely to exceed £2.5 million, or if you and your spouse hold combined qualifying assets above £5 million, the new rules change the inheritance tax position from “no liability” to a measurable one. The size of that liability depends on valuation, ownership structure, the wording of your wills, any gifts made since 30 October 2024, and the liquidity available in the estate to settle the bill.We work with family business owners and landowners to model the position under the new rules, identify whether any change to ownership, wills, lifetime gifting strategy or insurance funding is worth considering, and document the analysis so that executors are not left to reconstruct it later.
To discuss your position, Call us on 020 8554 2135 or email us at info@visionconsulting.co.uk.