BPR & APR Reform April 2026: £2.5m Allowance, 50% Above
BPR and APR from 6 April 2026: a combined £2.5m allowance at the 100% rate, transferable between spouses, with 50% relief above it and AIM shares at 50% in all cases.
Overview
Business Property Relief and Agricultural Property Relief are the two Inheritance Tax reliefs that let family farms and family trading businesses pass to the next generation without an IHT charge. Relief of up to 100% has been available on qualifying assets since March 1992. From 6 April 2026 the 100% rate is capped: a combined allowance of £2,500,000 per individual covers both reliefs together, and qualifying value above it is relieved at 50% instead. Because 50% relief leaves half the value chargeable at the 40% IHT rate, the effective rate on the excess is 20%.
The allowance is transferable. Any unused part passes to a surviving spouse or civil partner, and where the first death was before 6 April 2026 a full allowance is assumed to be available. A couple can therefore pass on £5,000,000 of qualifying agricultural or business assets at the 100% rate, or up to £5.65m free of Inheritance Tax once both nil-rate bands are counted. It is not automatic: the transfer has to be claimed, within four years from the end of the month in which the survivor dies, or six months from the date the personal representatives first act if that is later (IHTA 1984 sections 124E and 124F).
HMRC's stated rationale is concentration. In 2021 to 2022, 40% of the total Exchequer cost of agricultural property relief went to the top 7% of claims, so 117 estates accounted for £219m of tax foregone; for business property relief, 53% of the cost went to the top 4% of claims, so 158 estates accounted for £558m. Against that, 93% of estates claimed agricultural property below £2.5m and 96% claimed business property below it, with median qualifying values of £486,000 and £200,000 respectively. The reform is aimed at the tail, and the allowance is set well above the typical claim.
HMRC forecasts up to 1,100 estates paying more Inheritance Tax in 2026 to 2027: up to 185 claiming agricultural property relief, and up to 915 claiming only business property relief, of which around 700 are expected to hold only shares designated as "not listed". Around 85% of estates claiming APR are forecast to pay no more than before. HMRC describes these as static estimates assuming no behavioural change, and so as a maximum.
What changed, and when
The design moved twice between announcement and commencement, and a good deal of commentary still describes the original version. The sequence:
- 30 October 2024, Autumn Budget 2024. Reform announced, with a £1m allowance from 6 April 2026, 50% relief above it, and no transfer between spouses.
- 27 February 2025. Technical consultation published on how the reforms apply to trusts, which also announced the broader extension of interest-free instalments and the standardisation of exit charge rates. A summary of responses followed on 21 July 2025.
- Budget 2025. Any unused allowance made transferable between spouses and civil partners, including where the first death was before 6 April 2026.
- 23 December 2025. The allowance raised from £1m to £2,500,000, letting a couple pass on £5,000,000 of qualifying assets between them on top of existing allowances.
- 18 March 2026. Finance Act 2026 receives Royal Assent. Section 65 introduces Schedule 12, amending IHTA 1984 sections 104 and 116 and inserting a new Chapter 2A for the individual and trust allowances.
- 6 April 2026. The measure takes effect.
If you are reading advice written during 2025, check which allowance it assumes. A note that says £1m and "not transferable" is describing the announced design, not the enacted one.
Pre-2026 vs post-2026 relief comparison
| Asset class | Pre-6 April 2026 | Post-6 April 2026 | Notes |
|---|---|---|---|
| Sole-trader business and partnership interest | 100% BPR (unlimited) | 100% BPR within the £2.5m allowance / 50% above | The allowance is per individual and covers BPR and APR combined. Interests above £2.5m take the 50% rate on the excess. |
| Unlisted (private) trading company shares | 100% BPR (unlimited) | 100% BPR within the £2.5m allowance / 50% above | The same allowance is shared with agricultural property. Allocation across asset classes does not change the total, because everything outside the allowance is relieved at the same 50%. |
| Shares designated "not listed" on a recognised exchange (AIM and similar) | 100% BPR (unlimited) | 50% BPR on the whole holding | Reduced to 50% in all circumstances, so these shares never touch the allowance and get no 100% band at all. An effective 20% IHT rate applies across the entire holding. |
| Qualifying shares on foreign exchanges that are not recognised stock exchanges | 100% BPR (unlimited) | 50% BPR on the whole holding | Treated the same way as the "not listed" class above, and likewise outside the allowance. |
| Listed / main-market controlling shareholding (50%+) | 50% BPR (unlimited) | 50% BPR (unchanged) | Already at 50% before the reform and unaffected by it. |
| Land, buildings and plant used in the deceased trade | 50% BPR (unlimited) | 50% BPR (unchanged) | Assets the transferor owned personally and that were used by a company they controlled or a partnership they were a partner in (IHTA 1984 s.105(1)(d)). Already at 50% before the reform. |
| Agricultural property (owner-occupied) | 100% APR (unlimited) | 100% APR within the £2.5m allowance / 50% above | Combined with BPR for the allowance. A farm worth £2.5m in agricultural value alongside £1m of trading-company shares has £1m sitting above the allowance. |
| Agricultural property (tenanted on a pre-1 September 1995 lease) | 50% APR (unlimited) | 50% APR (unchanged) | Already at 50% before the reform. |
| Land in an environmental land management agreement | Environmental value not eligible | Eligible for APR, within the £2.5m allowance | A separate measure: the environmental value of land managed under an agreement with a public body or approved responsible body has been eligible for APR for transfers from 6 April 2025. |
| Relievable property held in trust | 100% relief (unlimited) | £2.5m trust allowance, capped per settlor | Not a free-standing second allowance: capped at the same amount less anything already acquired by that settlement or by any other settlement made by the same settlor (IHTA 1984 s.124H(4)(b)(ii)). |
Worked examples
Both examples assume a single owner, agricultural value only, no other estate, and no residence nil-rate band. The point of showing two is that the allowance is high enough that a farm which sounds large can still produce no Inheritance Tax at all.
A £3,000,000 farm
| Qualifying agricultural value | £3,000,000 |
| Relieved at 100% (within the allowance) | £2,500,000 |
| Relieved at 50% (above the allowance) | £500,000 × 50% = £250,000 |
| Total relief | £2,750,000 |
| Chargeable after relief | £250,000 |
| Less nil-rate band | £250,000 |
| Inheritance Tax at 40% | £0 |
£250,000 survives the relief, and the nil-rate band covers it. Under the originally announced £1m allowance the same farm would have left £1m chargeable and produced a real bill. That gap is the practical effect of the December 2025 increase.
An £8,000,000 farm
| Qualifying agricultural value | £8,000,000 |
| Relieved at 100% (within the allowance) | £2,500,000 |
| Relieved at 50% (above the allowance) | £5,500,000 × 50% = £2,750,000 |
| Total relief | £5,250,000 |
| Chargeable after relief | £2,750,000 |
| Less nil-rate band | £325,000 |
| Inheritance Tax at 40% | £970,000 |
With a spouse's allowance transferred. If the farm passes to a surviving spouse on the first death and the deceased's allowance and nil-rate band are both unused, the second death has £5,000,000 of allowance and £650,000 of nil-rate band available. The same £8,000,000 farm then leaves £1,500,000 chargeable and £340,000 of Inheritance Tax, against £970,000 on a single allowance. Transferability is worth more here than any planning structure.
Where a charge does arise, the Inheritance Tax on property eligible for either relief can be paid by 10 equal annual instalments, interest-free, which is the mechanism intended to stop a farm having to be sold to fund the bill.
AIM and other "not listed" shares
The share change is not an allowance change, and conflating the two is the most common error in commentary on this reform. From 6 April 2026 business property relief drops from 100% to 50% in all circumstances for shares admitted to trading on a recognised stock exchange but designated as "not listed" - the category AIM shares sit in - and for qualifying shares listed on foreign exchanges that are not recognised stock exchanges.
The consequence is that these holdings never get a 100% band and cannot draw on the £2.5m allowance at all. A holding of any size carries an effective 20% Inheritance Tax rate across its whole value, where before it could pass entirely relieved after the two-year holding period. That is a different and generally harsher outcome than a private trading company holding of the same value, which does get the allowance.
One administrative softening: HMRC notes that for estates holding only shares that are not listed there are no new obligations, because the only change is the rate of relief. And section 227 of IHTA 1984 was amended so that Inheritance Tax on all shares qualifying for business property relief can be paid by instalments without meeting the section 228 conditions.
Trusts, instalments and exit charges
The trust allowance itself dates from Autumn Budget 2024, at the original £1m. The technical consultation published on 27 February 2025 was about how to apply it, and announced two further changes alongside it:
- A trust allowance, capped per settlor. A £2,500,000 allowance applies to the combined value of relievable agricultural and business property in trusts, and trustees have to keep records of how much they have used and run an additional calculation at the 50% rate above it. It is not a free-standing second allowance: for a settlement commencing on or after 30 October 2024, s.124H builds it from property whose transfer into the trust was itself relieved out of the settlor's own allowance, and caps it at £2,500,000 less anything already acquired by that settlement or by any other settlement made by the same settlor. Pre-30-October-2024 settlements are dealt with under s.124I.
- Instalments extended. Payment by 10 equal annual instalments, interest-free, now covers all property eligible for agricultural property relief or business property relief, rather than only the categories that previously qualified.
- Exit charges standardised. Trust exit charge rates are now calculated on unrelieved values in every case, whether the exit falls before or after the first 10-year anniversary. Trustees will need to calculate a different rate for an exit after a 10-year anniversary.
Commencement for trusts is staged. A trust that existed before 30 October 2024 is affected from its next 10-year anniversary falling on or after 6 April 2026. A new trust, or an existing trust that held no agricultural or business property on or before 30 October 2024, is affected from 30 October 2024, with the availability of 100% relief depending on the value of qualifying property transferred in on or after that date.
Planning options
The first question is whether there is an exposure at all. With a £2.5m allowance per person, transferable, plus nil-rate bands, a couple can pass on £5.65m before any Inheritance Tax arises - and the median APR claim is £486,000. Most families reading this page do not have a problem to solve. Where the numbers are genuinely above the allowance:
- Make sure the spousal transfer is claimed. This is the largest single lever and it needs no structure at all, but it does need a claim: personal representatives have four years from the end of the month in which the survivor dies, or six months from the date the personal representatives first act if that is later (IHTA 1984 s.124F). An allowance used up on the first death is gone; an allowance left unused transfers, and where the first death was before 6 April 2026 a full allowance is assumed available.
- Lifetime gifting, remembering the allowance is rolling. Gifts of qualifying assets are Potentially Exempt Transfers on the usual 7-year clock. But the allowance available on any transfer is £2.5m less whatever has already been relieved at 100% in the preceding 7 years (s.124D(2)), so gifting does not leave a full allowance behind for the estate until 7 years have run. The transitional rule also bites: a gift made on or after 30 October 2024 is caught by the new regime if the donor dies on or after 6 April 2026 and within 7 years of it. Relief on a failed PET further requires the donee to still hold the property at death (ss.113A, 124A).
- Use the instalment option. Where a charge does arise on farm or business property, 10 interest-free annual instalments are usually a better answer than selling the asset that generates the income.
- Trust structuring, with the cap understood. Splitting property across several trusts buys nothing: a settlement's allowance is capped at £2.5m less what has already been acquired by that settlement or any other settlement made by the same settlor (IHTA 1984 s.124H(4)(b)(ii)). For a trust set up on or after 30 October 2024 the allowance is built out of the settlor's own allowance, because only property whose transfer in was relieved under s.104(1A) or s.116(1A) counts. Settlements that commenced before 30 October 2024 are handled separately under s.124I. See the UK trust tax guide.
- Family Investment Companies. A FIC is an investment company, not a trading company, so it does not qualify for business property relief and does not compete for the allowance. It is a parallel route for investment wealth rather than a way to shelter business assets. See the FIC guide.
Values close to or above the allowance, trust interests, and any holding of shares that are not listed all warrant professional advice. This page explains the rules; it is not advice on a particular estate.
Related calculators and guides
- BPR / APR allowance calculator (April 2026) - model the 100% / 50% split and a transferred spousal allowance.
- Inheritance tax calculator - personal-estate IHT projection with NRB, RNRB taper and gift PETs.
- IHT gift taper calculator - 7-year PET clock and year-3-to-7 taper relief modelling.
- UK Inheritance Tax rules guide - full IHT framework including the NRB freeze to April 2031.
- Family Investment Companies (FIC) guide - parallel route for investment wealth.
- UK trust tax guide - relevant property trust mechanics and the trust allowance.
- Business Asset Disposal Relief guide - CGT relief on disposal of qualifying trading businesses.
- Autumn Budget 2024 summary - the original announcement, before the two amendments.
- Pension drawdown calculator - cash-flow modelling ahead of pension IHT inclusion in April 2027.
Frequently asked questions
When do the BPR and APR changes take effect?
6 April 2026, for the £2.5m allowance on the 100% rate and the 50% relief above it. Shares designated "not listed" on a recognised exchange move to 50% from the same date. The extension of APR to the environmental value of land in an environmental land management agreement came earlier, for transfers from 6 April 2025. The measure was enacted by Finance Act 2026, which received Royal Assent on 18 March 2026.
What is the £2.5m allowance exactly?
A single £2.5m allowance per individual covering the 100% rate of Business Property Relief and Agricultural Property Relief combined, applied to the value of the qualifying property rather than to the tax. Value above it is relieved at 50%, which leaves half the excess chargeable and so an effective 20% IHT rate on that slice. Someone with £2m of agricultural property and £1m of unlisted trading-company shares has £3m of qualifying property: £2,500,000 at 100% and £500,000 at 50%, leaving £250,000 chargeable before the nil-rate band.
Can spouses transfer the allowance?
Yes. Any unused part of the £2.5m allowance transfers to a surviving spouse or civil partner from 6 April 2026, which was announced at Budget 2025. Where the first death happened before 6 April 2026, a full £2.5m allowance is assumed to be available to transfer. That gives a couple £5m of qualifying property at the 100% rate between them, or up to £5.65m tax-free once the two nil-rate bands are added. An earlier version of this page said the allowance was not transferable, which was true only of the original Autumn Budget 2024 design.
How does this affect AIM share portfolios?
Shares admitted to trading on a recognised stock exchange but designated as "not listed", which is the category AIM shares fall into, drop from 100% relief to 50% in all circumstances. They are not merely pushed above an allowance: they get no 100% band at all and cannot use the allowance, so a holding of any size carries an effective 20% IHT rate across its whole value. Qualifying shares listed on foreign exchanges that are not recognised stock exchanges are treated the same way.
What does the change mean for family farms?
Most claiming estates are unaffected. HMRC forecasts up to 185 estates claiming agricultural property relief will pay more Inheritance Tax in 2026 to 2027, meaning around 85% of estates claiming APR are expected to pay no more than before. The reason is scale: in 2021 to 2022, 93% of estates claimed agricultural property below £2.5m, and the median value of assets qualifying for APR was £486,000. Farms materially above the allowance do face a real charge, and the 10-year interest-free instalment option now extends to all property eligible for either relief.
How much Inheritance Tax does a farm above the allowance actually pay?
Work it through on an £8,000,000 farm in single ownership with no other assets. £2,500,000 is relieved at 100% and the remaining £5,500,000 at 50%, so total relief is £5,250,000 and £2,750,000 is chargeable. The nil-rate band takes off £325,000, leaving £2,425,000 taxed at 40%: £970,000. If a spouse's unused allowance and nil-rate band are both available at the second death, the same farm gives £340,000.
What happens to relievable property held in trust?
Trusts get their own £2.5m allowance for the combined value of relievable agricultural and business property, separate from the settlor's own allowance rather than shared with it. Trustees have to keep records of how much of the allowance they have used and run an additional calculation at the 50% rate for value above it. Two connected changes came out of the trusts consultation: exit charge rates are now calculated on unrelieved values whether the exit falls before or after the first 10-year anniversary, and the interest-free instalment option was broadened.
How does this interact with the 7-year gift rule?
Lifetime gifts of qualifying assets remain Potentially Exempt Transfers on the usual 7-year clock, and a donor who survives 7 years takes the value out of the estate. Two things catch people. First, the allowance is a rolling 7-year one: IHTA 1984 section 124D(2) gives £2.5m less everything already relieved at 100% on chargeable transfers in the 7 years ending with the transfer, so a gift that uses the allowance leaves less of it for the death estate. Second, relief on a failed PET also needs the donee to still hold the qualifying property at the donor's death, under sections 113A and 124A.
Which legislation actually makes the change?
Finance Act 2026, which received Royal Assent on 18 March 2026. Section 65 introduces Schedule 12, which amends the Inheritance Tax Act 1984: sections 104 and 116 are amended to refer to the new allowance with the 50% rate above it, and a new Chapter 2A provides both the individual allowance and the separate trust allowance along with the transfer of an unused allowance to a surviving spouse. Section 227 is amended so that Inheritance Tax on all shares qualifying for business property relief can be paid by instalments.
Can I still pay the tax in instalments?
Yes, and the option is wider than it was. The reform extends payment of Inheritance Tax by 10 equal annual instalments, interest-free, to all property eligible for agricultural property relief or business property relief. Section 227 of the Inheritance Tax Act 1984 was amended so that shares qualifying for business property relief can go on instalments without having to meet the conditions in section 228, and the interest relief in section 234 was extended to those instalments.
How many estates does this actually affect?
HMRC forecasts up to 1,100 estates across the UK paying more Inheritance Tax in 2026 to 2027. Of those, up to 185 claim agricultural property relief, and up to 915 claim only business property relief, of which around 700 are expected to hold only shares designated as "not listed". HMRC describes these as static estimates that assume no behavioural change, and therefore as a maximum.
How does this interact with the pension IHT change from April 2027?
They are separate measures that land on similar balance sheets a year apart. From 6 April 2027, under Finance Act 2026 sections 66 to 71, most unused pension funds and pension death benefits come into the estate for Inheritance Tax. A family holding a trading business, a farm and an unused pension pot should model both changes together rather than in isolation, because the pension value can push the rest of the estate through the nil-rate bands.