Landed estates and farm inheritance tax: the £2.5 million allowance
From 6 April 2026 the first £2.5 million of your qualifying farmland and trading business passes free of inheritance tax, and you pay an effective 20% on the value above it. A married couple can cover up to £5 million between them. If a guide still tells you the figure is £1 million, it has not been updated.
The number that decides it
Will your family pay inheritance tax on the farm?
Work out the qualifying value first, because that single number tells you whether you have a problem. Add up the agricultural value of the land and buildings and the value of any genuine trading business, then set the total against £2.5 million. Under it, the relief covers everything, as it did before. Over it, only the excess is exposed, and the exposure is smaller than most of the headlines suggested.
A worked estate: £4,000,000 of qualifying value
- Relieved at 50%
- £750,000
- stays in the estate
- Inheritance tax at 40%
- £300,000
- before your nil rate band
- Effective rate on the excess
- 20%
- the number to plan against
Married or in a civil partnership? The unused part passes to the survivor, so the couple figure is £5,000,000 and this same estate has nothing to pay.
Note: Example figures displayed
Put your own figure through it
Enter the agricultural value and any trading business value. The combined allowance calculator shows what is relieved, what is exposed, and the tax on the excess.
If you have made gifts since October 2024, some of that allowance may already be spoken for by the time the estate is valued.
Law today
Which rules are actually in force from April 2026?
A great deal of the coverage written while this reform was going through never caught up with where it landed, so the single most useful thing on this page is a plain statement of the rules that are law today.
| Rule | Status | What it means for you |
|---|---|---|
| Combined £2.5m allowance for 100% relief (IHTA 1984 s.124D, inserted by FA 2026 Sch 12 para 4) | In force from 6 April 2026 | The first £2.5 million of qualifying farmland and qualifying business value is relieved at 100%. Above that, relief halves, so half of the excess stays in the estate and is taxed at the ordinary 40% rate. On £1.5 million of excess that is £300,000. |
| One allowance shared by agricultural and business property | In force from 6 April 2026 | Farmland and the trading business draw on the same £2.5 million. They do not get £2.5 million each, which is the point most mixed estates get wrong. |
| Transferable between spouses and civil partners (s.124E) | In force from 6 April 2026 | Whatever the first of you to die does not use passes to the survivor, in the same way as the nil-rate band, so it has to be claimed. A couple can shelter up to £5 million of qualifying value between them. |
| Rolling seven-year allowance period (s.124D(3)) | In force from 6 April 2026 | The allowance available on death is reduced by qualifying transfers you made in the previous seven years. It refreshes as those gifts fall out of the window. |
| AIM shares and other 'not listed' quoted shares: 50% sub-tier | In force from 6 April 2026 | Relief on these shares drops from 100% to 50%, but that 50% sits outside the allowance and does not consume any of your £2.5 million. |
| Anti-forestalling on lifetime gifts | In force from 6 April 2026 | Gifts made on or after 30 October 2024 fall under the new rules if you die on or after 6 April 2026 and within seven years of the gift. Gifts made before 30 October 2024 are not caught at all. |
| One allowance across same-settlor trusts | In force from 6 April 2026 | Trusts settled before 30 October 2024 keep an allowance each. Trusts settled by the same person on or after that date share a single allowance between them, so adding trusts no longer multiplies the relief. |
| The £1 million figure | Superseded, never enacted at that level | Some guides still show the earlier £1 million figure, and at least one long-standing adviser page still presents it as current law. It was the announcement-stage number. Plan on £2.5 million. |
Note: Example figures displayed
The investment line
What if your estate is rental property rather than farmland?
A straight buy-to-let portfolio does not get this relief, and the April 2026 allowance does not change that. The test is whether the business is mainly trading or mainly holding investments, and collecting rent from residential lettings falls on the investment side of that line no matter how many properties you hold or how much of your week they take up. If your estate is rentals and nothing else, the allowance on this page is probably not for you.
Can qualify: mainly trading
Development work
Trading, so a developer holding sites and work in progress can qualify on that element.
Serviced accommodation
Only where the services are substantial rather than nominal, and the bar for that is high.
Does not qualify: mainly investment
Straight buy-to-let
However many properties you hold, and however much of your week they take up.
Furnished holiday letting
On its own, it has never cleared the line.
If you sit near the boundary, the linked page walks the line properly rather than giving you a yes or no you cannot rely on.
Where this does bite for landlords is the mixed estate: a working farm or a trading company alongside a rental portfolio. The rentals get no relief and the trading side competes with the farmland for the same £2.5 million, so the allocation decision is real money.
Allocation
Mixed estates: one allowance, several claims on it
Most of the estates we see are not purely agricultural. There is land, a farmhouse, some let cottages, perhaps a diversified enterprise and often a share portfolio. Each of those is treated differently, and the allowance is claimed against the qualifying parts only, so the first job is deciding what actually counts before deciding how to spread the relief.
One allowance, and what competes for it
Draws on your £2,500,000
- Qualifying agricultural value of the land and buildings
- A genuine trading business
- Ordinary shares in a private trading company
Separate 50% tier, consumes none of it
- Shares designated as not listed on the markets of recognised stock exchanges, AIM in practice
The rentals in a mixed estate get no relief at all, and the trading side competes with the farmland for the same allowance, so the allocation decision is real money.
It is one of the few places where the reform left something on the table, and it changes how you would sequence gifts of different asset types.
The seven-year window
How do gifts and trusts change your allowance?
Giving land away in your lifetime still works, and the seven-year clock still runs. What changed is the date the rules attach to.
Before 30 October 2024
Gifts
Outside the new regime entirely, whenever you die.
Trusts
A trust settled before that date keeps its own allowance.
On or after 30 October 2024
Gifts
Measured against the new rules if you die on or after 6 April 2026 and within seven years of making them.
Trusts
Trusts settled by the same person share one allowance between them, so adding a trust no longer adds a slice of relief.
Sequencing matters more than it used to. Because the allowance looks back seven years, the order in which you give things away, and how far apart, changes what is left when it counts.
Scope
What we do not cover, and who does
This site handles the property tax half of a landed estate. Several things a farming family needs sit outside that, and we would rather say so than pretend otherwise.
Herd basis elections
The livestock valuation election is a farm accounts decision.
Your farm accountant
Farmers' averaging
Averaging profits across two or five years is income tax work on the trading accounts.
Your farm accountant
Basic Payment Scheme and environmental schemes
Scheme entitlements, delinked payments and stewardship agreements.
Farm accountant or land agent
Dividing the estate between farming and non-farming children
We cover the tax consequences of whichever split you choose, not the split itself.
Solicitor and the family
Agricultural tenancy law
Succession rights, rent reviews and notices to quit.
Rural surveyor and solicitor
We work alongside those advisers rather than replacing them. What we do is the inheritance tax and capital tax position on the land, the buildings and the structures that hold them.
First moves
Where to start
Get a qualifying value on paper. Not a market value of the whole estate, but the part that actually qualifies: the agricultural value of the land and buildings, plus any real trading business, with the rentals and the surplus development value stripped out. That figure against £2.5 million, or £5 million if there are two of you, is the answer to the question you came here with.
Then check the last two years of gifts, because the 30 October 2024 line runs through the middle of a lot of half-finished planning. If you made a gift or settled a trust after that date, the numbers you were given at the time were almost certainly based on the announcement figure.
You bring the valuations and the gift history. We tell you what qualifies, what does not, how much headroom is left, and what the tax would be on a death today.
Get a written allowance positionFree consultation
Find out where your estate sits against the allowance
Book a free consultation. We will put a qualifying value on the estate, check what your gifts since October 2024 have used up, and tell you the tax on a death today.
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