INHERITANCE TAX: WHAT THE NEW SPOUSAL TRANSFER RULE MEANS FOR AGRICULTURAL & BUSINESS PROPERTY RELIEF
How the 2025 Budget Halves the CGT Relief for Employee Ownership Trust Sale
Introduction
One of the more positive headlines to emerge from the 2025 Budget relates to reliefs for agricultural and business property under Agricultural Property Relief (APR) and Business Property Relief (BPR). Though it perhaps should only be framed as a wafer-thin silver lining in a pretty flabby grey cloud. While the Budget confirmed a cap on 100% relief, it also introduces a welcomed concession: any unused allowance up to £1 million can now transfer to a surviving spouse or civil partner. For business owners, farm-owners and families seeking to pass on a business or agricultural estate, this tweak may make a material difference to their affairs.
What’s changing (from 6 April 2026) ?
From the 2026–27 tax year, the following reforms apply:
- There will be a combined £1 million allowance per individual for the first portion of qualifying agricultural and business property that receives 100% IHT relief. Assets above that amount will receive 50% relief.
- Importantly, any unused portion of that individual £1 million allowance can now be transferred to a surviving spouse or civil partner, including in cases where the first death occurred before 6 April 2026.
- In effect, this allows married couples or civil partners to combine allowances, so in favourable circumstances up to £2 million of qualifying assets may benefit from the 100% relief (assuming no part was used on first death).
- The 50% relief still applies for qualifying business property shares that are traded on certain stock exchanges, or otherwise excluded from full relief.
- Other complementary reforms: estates or trusts with qualifying assets will retain the ability to pay IHT in equal annual instalments over 10 years (interest-free) where APR or BPR apply.
Who stands to benefit most?
This change is especially relevant for:
- Farmers and landowners whose estates qualify for APR, especially where one spouse dies leaving substantial qualifying land or agricultural property, but did not exhaust the full £1 million allowance;
- Owners of family businesses or privately held trading companies who rely on BPR to mitigate IHT on succession;
- Married couples or civil partners with business or farm assets who want to maximise relief on death and use the full combined allowance;
- Estates where one partner dies first, as the new rule allows the surviving spouse to “inherit” the unused relief, simplifying planning and potentially easing the transition to the next generation.
The move has been broadly welcomed as a “fairer” and more flexible approach. In particular, it helps to avoid the awkward position under the draft legislation where a couple could effectively lose unused relief simply because the timing of death wasn’t aligned. However, the relief cap and 50% fallback mean that larger farms or businesses which significantly exceed the £1 million threshold may still face a material IHT charge on death, even with combined spousal relief. Additionally, shares in certain listed or partly-quoted companies (e.g., those trading on non-recognised exchanges) may no longer enjoy 100% relief, reducing the benefit for some business-owner estates.
Planning Implications - What You Should Do
If you or your clients hold qualifying business or agricultural assets and hope to pass them on, this new flexibility is worth incorporating into estate planning. Some practical steps to consider:
- Review Wills and estate structures now. Ensure wills are drafted (or updated) in light of the new transferable allowance so that on first death the surviving spouse is positioned to take full advantage.
- Valuation and quantification: carefully assess what part of the £1 million allowance is likely to be used up on first death, especially where there are mixtures of qualifying and non-qualifying assets, or multiple trusts/structures involved.
- Plan for larger estates: if the farm or business substantially exceeds £1 million, consider whether the 50% relief on excess will create a meaningful IHT liability, and whether lifetime gifting or trust structuring remains appropriate.
- Watch for assets falling outside qualifying criteria, e.g., certain listed shares: these may only qualify for 50% relief (or possibly none), so need careful due diligence and possibly alternative succession tactics.
- Coordinate with other IHT allowances such as the nil-rate band, residence nil-rate band (if applicable), spousal exemptions, and lifetime transfers. The combined impact, timing, structure, and sequencing, remains key.
Conclusion
The new ability to transfer any unused £1 million relief allowance for APR/BPR between spouses or civil partners represents a genuinely meaningful improvement to the 2026-onwards IHT regime. For many family businesses, farms and private companies, the change restores some of the flexibility lost under the original reform proposals and makes succession planning less brittle. That said, the introduction of a 50% relief rate above the £1 million threshold, and the stricter treatment of shares in certain companies, means the relief is no longer as generous or automatic as before. For larger estates, or for businesses with quoted shares, there remains a real risk of IHT exposure and careful planning will continue to be essential.
If you’d like to run through whether this change affects your clients (or your own estate), or to revisit your Will or structure in light of the new rules, do get in touch via our contact page below.
