For generations, farming families in England and Wales relied on Agricultural Property Relief (APR) and Business Property Relief (BPR) to pass the farm to the next generation free of inheritance tax. The Finance Act 2026 has fundamentally changed that. From April 2026, the 100% relief that once applied without limit is now capped at £2.5 million per person. For farms above that threshold — and many Cheshire and North Wales farms are — the consequences can be severe. This article explains what changed, who is affected, and how four straightforward planning steps can eliminate the IHT liability entirely.
What Did the Finance Act 2026 Change?
Before the Finance Act 2026, qualifying agricultural and business assets attracted 100% relief from inheritance tax with no upper limit. A farm worth £10 million could pass to the next generation with zero IHT, provided it met the qualifying conditions. The Finance Act 2026 introduced a combined APR/BPR cap of £2.5 million per person. Assets above that threshold now only attract 50% relief — resulting in an effective IHT rate of 20% on the excess. This is the most significant change to agricultural IHT in a generation.
The £2.5 million cap applies per person — not per couple. A farming couple each has their own £2.5 million allowance, giving a combined potential shelter of £5 million. But only if the farm is structured correctly. If the farm is owned entirely by one spouse, only one allowance is available on that spouse's death.
Who Is Affected?
Any farming family whose qualifying agricultural or business assets exceed £2.5 million is now exposed to IHT on the excess. Given current land values — with Cheshire farmland regularly trading at £10,000–£15,000 per acre — a 250-acre farm can easily exceed the cap. Add the farmhouse, farm buildings, and any partnership interest, and many family farms that previously had no IHT exposure now face a significant bill.
The Wilson Farm Case Study: £810,000 Saved
Tom (72) and Jean (69) Wilson farm 700 acres in Cheshire. Their estate breaks down as follows: farmland £4,200,000; farmhouse £750,000; farm buildings £350,000; partnership interest £400,000; savings £500,000 — a total estate of £6,200,000, all qualifying for APR or BPR.
Without Planning: £810,000 IHT
The farm is solely in Tom's name. Tom dies first. His APR/BPR allowance of £2.5 million is used on his death — but it does not transfer to Jean. Jean later dies with the full farm in her estate. Her APR/BPR allowance covers £2.5 million. The remaining £3.7 million of qualifying assets only attracts 50% relief, leaving £1.85 million chargeable. After applying Jean's nil rate band and any remaining allowances, the IHT bill is approximately £810,000.
With Planning: Zero IHT
The same farm, the same family, the same assets — but with four planning steps taken in good health, the IHT liability is eliminated entirely. Tom and Jean each end up owning £2,850,000 of qualifying assets. Each uses their own £2.5 million APR/BPR allowance on death. The small excess of £350,000 per estate (after 50% relief = £175,000 chargeable) is absorbed by the nil rate band of £325,000. Total IHT: nil.
Same farm. Same family. Same assets. The only difference is the advice taken. Planning saves £810,000.
The Four Planning Steps
The Wilson family's planning involves four steps, each of which is straightforward when taken in good health.
- Equalise the farm — Transfer half the farm into Jean's name. Because transfers between spouses are exempt from both IHT and CGT (on a no-gain, no-loss basis), this can be done without any immediate tax cost. Once equalised, each spouse has their own £2.5 million APR/BPR allowance.
- Update both wills — Each will should place the farm share into a will trust on death, rather than passing it outright to the surviving spouse. This ensures each spouse's APR/BPR allowance is used separately on each death, rather than being merged and potentially wasted.
- Preserve the nil rate bands — Tom's nil rate band (£325,000) transfers to Jean on his death. The combined nil rate bands of £650,000 absorb any small APR excess above the cap, eliminating the residual IHT.
- Consider the 7-year clock — A lifetime gift of farmland to children starts a Potentially Exempt Transfer (PET) clock. If the donor survives seven years, the gift falls outside the estate entirely and the APR/BPR allowance refreshes on death. This is a powerful tool for older farmers who want to pass land to the next generation.
Why the APR/BPR Allowance Does Not Transfer Between Spouses
This is the most important point for farming couples to understand. Unlike the nil rate band — which does transfer to a surviving spouse — the APR/BPR allowance does not transfer. If Tom owns all the qualifying assets and dies first, his £2.5 million APR/BPR allowance is used on his death. Jean then inherits the full farm. When Jean later dies, she has her own £2.5 million allowance — but Tom's is gone. The only way to use both allowances is to ensure each spouse owns qualifying assets in their own name before the first death.
What Counts as a Qualifying Asset?
Agricultural Property Relief applies to agricultural land and buildings used for agricultural purposes, including the farmhouse (if it is of a character appropriate to the farm). Business Property Relief applies to interests in a farming partnership, shares in a farming company, and farm machinery and equipment held through a business. Both reliefs require the asset to have been owned for a minimum period — generally two years for APR and two years for BPR.
The Urgency: Why Act Now?
The Finance Act 2026 changes are already in force. Every month that passes without planning is a month during which the farm remains exposed. Farm equalisation, will updates, and trust structures all take time to implement — and they can only be put in place while both spouses are alive and have mental capacity. If one spouse loses capacity or dies before the planning is complete, the opportunity is lost.
We offer a free farm estate review for farming families across Cheshire, North Wales, and the wider North West. We will assess your current exposure under the Finance Act 2026 cap and set out the steps needed to protect your farm for the next generation.
Frequently Asked Questions
- Does the nil rate band still apply to farms? Yes — the standard nil rate band (£325,000 per person, transferable between spouses) still applies to farm estates and can absorb any small excess above the APR/BPR cap.
- Can we use both APR/BPR allowances if we are not married? No — the inter-spouse transfer exemption only applies to married couples and civil partners. Unmarried farming partners cannot transfer assets between themselves free of CGT.
- Does farm equalisation trigger Capital Gains Tax? No — transfers between spouses take place on a no-gain, no-loss basis for CGT purposes. There is no CGT on the transfer itself.
- What if the farm is held in a partnership? Partnership interests can qualify for BPR. The planning steps are similar, but the structure of the partnership agreement needs to be reviewed as part of the process.
- Do you advise farmers in North Wales? Yes — we act for farming families across Cheshire, Flintshire, Denbighshire, Wrexham, Conwy, and Anglesey.