Landed estates and farm inheritance tax: the £2.5 million allowance

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.

Here is the arithmetic on £4 million of qualifying value. The first £2.5 million is relieved in full. The remaining £1.5 million is relieved at 50%, so £750,000 stays in the estate. At the ordinary 40% rate that is £300,000 of inheritance tax, before your nil rate band and the rest of your estate come into it. That is the effective 20% figure, and it is the number to plan against.

If you are married or in a civil partnership, the unused part of the first allowance passes to the survivor, so the couple figure is £5 million and the same £4 million estate has nothing to pay. And if you have made gifts since October 2024, some of that allowance may already be spoken for by the time the estate is valued.

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.

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.

The honest exceptions are narrow. Development work is trading, so a developer holding sites and work in progress can qualify on that element. Serviced accommodation can qualify where the services are substantial rather than nominal, and the bar for that is high. Furnished holiday letting on its own has never cleared it. 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.

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.

Shares designated as not listed on the markets of recognised stock exchanges, AIM holdings in practice, are the exception worth knowing. Relief on them has dropped to 50%, but that 50% is a separate tier that does not eat into your £2.5 million. Ordinary shares in a private trading company are not in that tier: they are relieved under the normal business property relief rules and draw on the same £2.5 million as the farm. 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.

Giving land away in your lifetime still works, and the seven-year clock still runs. What changed is that gifts made on or after 30 October 2024 are measured against the new rules if you die on or after 6 April 2026 and within seven years of making them. Anything you gave away before that date is outside the new regime entirely, whenever you die, which is worth checking before anyone assumes a historic gift needs revisiting.

Trusts changed in the same direction. A trust you settled before 30 October 2024 keeps its own allowance. Trusts settled by the same person on or after that date share one allowance between them, so the old approach of adding a trust to add another slice of relief no longer does anything. If you were part way through a multi-trust plan when the announcement landed, that plan needs re-running rather than continuing.

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.

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 and belongs with your farm accountant.
• Farmers' averaging. Averaging profits across two or five years is income tax work on the trading accounts, again with your farm accountant.
• Basic Payment Scheme and environmental schemes. Scheme entitlements, delinked payments and stewardship agreements are handled by your farm accountant or land agent.
• Dividing the estate between farming and non-farming children. Who inherits what, and how the non-farming children are treated fairly, is succession planning for a solicitor and the family to settle. We cover the tax consequences of whichever split you choose, not the split itself.
• Agricultural tenancy law. Succession rights, rent reviews and notices to quit are a rural surveyor and solicitor matter, not a tax one.

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.

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.

We can produce a written view of your allowance position: what qualifies, what does not, how much headroom is left after gifts already made, and what the tax would be on a death today. You bring the valuations and the gift history, we do the rest.