Inheritance Tax on Farms: Will Your Family Farm Pay?

For most family farms, the answer is no. From 6 April 2026 the first £2.5 million of qualifying farm and business assets still passes free of inheritance tax when you die, and a couple can pass on up to £5 million between them. Below those figures, nothing changes for you at all. Above them, the relief halves rather than disappearing: only half of the excess is taxed at all, at the ordinary 40% rate, which is an effective 20% on the value above the allowance and not the 40% headline everybody has been quoting.

If the qualifying value of your farm sits comfortably under £2.5 million, or under £5 million between the two of you, you have your answer and the rest of this page is background reading. If it sits above, the bill is smaller than the coverage suggested, and it is worth seeing it worked out in pounds rather than in percentages.

Will your family farm pay inheritance tax?

Inheritance tax, or IHT, works on a farm the way it works on any other estate. It carries the same 40% rate and the same nil rate band as inheritance tax on a house in a town. What has always been different is the relief that sits on top of it, and from 6 April 2026 that relief has a ceiling.

The test is simple enough to run at the kitchen table. Add up what the qualifying parts of the farm are worth: the land, the farm buildings, the farmhouse, the machinery, the stock, and any trading business you run alongside them. Compare that total with £2.5 million for one person, or £5 million if the farm is passing through two of you. Everything below the line keeps 100% relief, exactly as it did before, so no inheritance tax is charged on it.

Only the value above the line is touched, and even then it is not taxed at the full rate. Relief on the excess drops to 50%, which leaves half of it in charge at the usual 40%. That is what farmers actually face from April 2026: a fifth of the top slice, and nothing at all on everything underneath it. The farming inheritance tax changes apply to deaths on or after 6 April 2026, so a death before that date is dealt with under the old, uncapped rules.

What does the £2.5 million allowance actually cover?

One allowance, one pot. It is a single combined allowance covering the qualifying agricultural property and the qualifying business property in your estate together, not one allowance for the land and a second for the business. If the farm holds £1.8 million of qualifying land and buildings and £900,000 of qualifying trading assets, those two compete for the same £2.5 million, and £200,000 of your total falls above it.

Assets that never qualified for relief in the first place, such as a cottage held purely as a rental investment, are not sheltered by the allowance and are taxed in the ordinary way. And shares that are not listed on a recognised stock exchange, the AIM holdings that often sit alongside a farm, attract relief at 50% from April 2026 but do not use up any of your £2.5 million.

Whether a particular field, farmhouse or diversified enterprise qualifies for relief at all is a separate question with its own tests, and our page on agricultural property relief works through the qualification gate. The trading side is covered on our business relief page, and if you want the cap mechanics in adviser detail, the £2.5m cap page sets them out. Where the farm is one part of a wider rural holding, our landed estates hub covers the whole picture.

How much would a farm above the allowance actually pay?

Malcolm Rees owns Marsh End Farm outright in his own name, with no spouse's allowance to add to his, and he has made no gifts of farm assets in the previous seven years. He dies in September 2026. The qualifying value of the farm on that date, land, buildings, farmhouse, machinery and stock together, is £3,650,000. Here is the whole calculation.

• The first £2,500,000 keeps 100% relief. Tax on that slice: £0.
• The excess is £3,650,000 minus £2,500,000, which is £1,150,000.
• The excess gets 50% relief, so £575,000 is relieved and £575,000 stays in charge.
• Inheritance tax at 40% on £575,000 is £230,000.
• £230,000 against an excess of £1,150,000 is an effective 20%. Against the whole £3,650,000 farm it is 6.3%.

Under the old rules Malcolm's family would have paid nothing on the farm, so the change costs them £230,000. That is a real number and worth planning for. It is also not 40% of everything, which on a farm of this size would have been £1,460,000. One thing the example deliberately leaves out: Malcolm's nil rate band and anything else in his estate sit on top of this and are worked out separately, so the figures above are the farm relief arithmetic on its own.

What if you are married or in a civil partnership?

Then the arithmetic doubles. Each of you has your own £2.5 million allowance, and an unused allowance passes to the survivor in the same way an unused nil rate band does, which carries the same condition it carries for the nil rate band: the survivor's executors have to claim it. Claimed, the figure between you is up to £5 million. Two allowances of £2.5 million, one farm.

Change that one fact in the example and the bill disappears. If Malcolm had been married and the farm had passed to his wife on his death, there would have been nothing to pay then, and on her later death the qualifying value of £3,650,000 would sit under the couple's combined £5 million. The £230,000 becomes £0.

Which is why the ownership question, whose name the farm is in and what the wills actually say, is worth checking before anything else you might do. It is the difference between one allowance and two, and on a mid-sized farm that difference is the entire bill.

Do gifts you have already made count against your allowance?

Some do. The £2.5 million is a rolling seven-year allowance rather than a once-in-a-lifetime one. Qualifying gifts of farm or business assets that you make during your life use up part of it, and what you used drops back out of the calculation once seven years have passed, so the allowance refreshes.

The date that matters is 30 October 2024. A lifetime gift made on or after that date is caught by the new rules if you die on or after 6 April 2026 and within seven years of making the gift. A gift made before 30 October 2024 is not caught, even where the death falls after April 2026. So if you handed land to the next generation in 2019, or in the early part of 2024, that transfer sits outside all of this, and anyone telling you that older gifts have been swept up is wrong.

The practical consequence is short. If you have made a substantial gift of farmland since October 2024, put it in the sum when you work out how much of your allowance is left. If your gifts predate that day, leave them out.

Why do some pages still say the cap is £1 million?

Because £1 million was the figure announced in October 2024, and it was raised before the legislation was passed. The allowance as enacted is £2.5 million per person. The government's announcement-stage summary page still carries the old £1 million and has never been updated, and a fair number of accountancy firms, landlord sites and news articles have copied it since. Much of what was published about farms and inheritance tax in the year after October 2024 was written while £1 million was still the figure on the table.

This is worth more than a footnote to you. On Malcolm's £3,650,000 farm, the announced £1 million allowance would have produced a bill of £530,000 rather than £230,000. Every piece of planning built on the old figure is aimed at a problem well over twice as large as the one you have.

So if a page, a briefing or a seminar quotes £1 million as current law, treat the rest of it with the same caution. The figures to work from are £2.5 million per person and £5 million for a couple, and the source is in the questions at the foot of this page.

The rules are already in force. What should you do now?

Start with a current value for the qualifying assets, because most farm valuations sitting in family papers are years old and land values have moved a long way since they were done. Then check the ownership and the wills, since that is what decides whether your family has one allowance or two. Last, list any qualifying gifts made since 30 October 2024, because those come off the allowance and nothing earlier does.

Give us the farm's rough value, whose name it is in and anything gifted since October 2024. We will come back with the figure your executors would be facing if the worst happened this year, and which of the steps above is the one actually worth your time.