Business Property Relief 2026: The New £1m Cap Explained
Until 5 April 2026, Business Property Relief and Agricultural Property Relief were among the most generous reliefs in the UK tax system: qualifying trading businesses and farmland could pass down entirely free of Inheritance Tax, with no upper limit.
From 6 April 2026, 100% relief is capped at the first £1,000,000 of combined qualifying assets. Above that, relief drops to 50%.
Many online calculators have not caught up with this. If a tool tells you a £3,000,000 family farm passes tax free, it is applying the old rules.
What changed on 6 April 2026
| Before 6 April 2026 | From 6 April 2026 | |
|---|---|---|
| Qualifying business property | 100%, unlimited | 100% on first £1m combined, then 50% |
| Qualifying agricultural property | 100%, unlimited | 100% on first £1m combined, then 50% |
| Qualifying AIM / unlisted shares | 100% | 50%, no share of the £1m allowance |
| Effective rate above the allowance | 0% | 20% |
The £1,000,000 is a single combined allowance across both reliefs. It is not £1m of business property plus £1m of agricultural property.
Where relief is 50%, half the asset's value stays in the taxable estate and is taxed at 40% — an effective 20% on that slice.
How the £1m allowance works
Work through the qualifying assets in order:
- Add together all qualifying business and agricultural property.
- The first £1,000,000 gets 100% relief.
- Everything above gets 50% relief.
- Qualifying unlisted and AIM shares get 50% separately, and take no part of the £1,000,000.
A worked relief calculation on £900,000 of business assets plus £600,000 of farmland:
| Combined qualifying property | £1,500,000 |
| Covered by the allowance at 100% | £1,000,000 → £1,000,000 relief |
| Above the allowance at 50% | £500,000 → £250,000 relief |
| Total relief | £1,250,000 |
| Value remaining in the taxable estate | £250,000 |
A worked example — a £2m farm
A farmer dies owning farmland and buildings worth £2,000,000 (all qualifying for Agricultural Property Relief) and a farmhouse worth £500,000 left to their children. No debts, no spouse, no transferred allowances.
Under the old rules
| Step | Amount |
|---|---|
| Net estate | £2,500,000 |
| Agricultural relief at 100% | −£2,000,000 |
| After reliefs | £500,000 |
| Nil-rate band | −£325,000 |
| Residence nil-rate band (tapered away — see below) | −£0 |
| Taxable | £175,000 |
| Inheritance Tax | £70,000 |
Under the 2026 rules
| Step | Amount |
|---|---|
| Net estate | £2,500,000 |
| Relief: £1,000,000 at 100% | −£1,000,000 |
| Relief: £1,000,000 at 50% | −£500,000 |
| After reliefs | £1,000,000 |
| Nil-rate band | −£325,000 |
| Residence nil-rate band (tapered away) | −£0 |
| Taxable | £675,000 |
| Inheritance Tax | £270,000 |
The same farm, the same family: £70,000 becomes £270,000. An extra £200,000, payable within six months of death, out of a business whose value is in land and machinery rather than cash.
That liquidity problem is the heart of the objection to this change. A farm generating £40,000 a year of profit cannot produce £270,000 without selling land — and selling land can make the remaining holding unviable.
The hidden second hit — the £2m taper
Notice that the residence nil-rate band is zero in both examples above, despite the farmhouse passing to the children.
That is because the residence band taper is measured on the net estate before reliefs. The estate is £2,500,000, which is £500,000 above the £2,000,000 threshold, so £250,000 of allowance is withdrawn — more than the £175,000 available. The allowance disappears entirely.
Business and agricultural relief do not rescue it. This catches almost every farming and family-business estate, and it is worth £70,000 of tax on its own.
What still qualifies
Business Property Relief requires a genuine trading business, held for at least two years:
- A sole trade or an interest in a partnership
- Unquoted shares in a trading company
- Land, buildings, plant or machinery used by a business you controlled or were a partner in (50% relief)
Agricultural Property Relief applies to the agricultural value of farmland and buildings, occupied for agricultural purposes, with ownership periods of two years if farmed by the owner or seven years if let. From April 2025 it also extends to land managed under certain environmental agreements.
Note that Agricultural Property Relief covers only the agricultural value. Where land has development or amenity value above that, the excess may get Business Property Relief if the land is part of a trading farm — or no relief at all if it isn't.
The farmhouse qualifies only if it is of a character appropriate to the land and occupied for agricultural purposes. A substantial house on a small holding regularly fails this test.
What has never qualified
The "wholly or mainly investment" exclusion removes:
- Property letting and buy-to-let portfolios
- Holiday lets, in most cases, despite the level of service provided
- Companies holding mainly cash, securities or investments
- Businesses being wound up
Excepted assets are also stripped out: cash and investments held in a trading company beyond what the trade actually needs get no relief, even though the company itself qualifies. Large cash balances accumulated in a family company are a common source of unexpected tax.
Paying the bill in instalments
Tax attributable to qualifying business assets, farmland and certain shareholdings can be paid in ten equal annual instalments rather than in one payment at six months.
- The first instalment is due at the normal six-month deadline.
- Interest runs on the outstanding balance.
- The option is withdrawn if the asset is sold — the balance becomes payable immediately.
For the £2,000,000 farm above, that turns £270,000 due at once into £27,000 a year plus interest. It does not reduce the tax, but it can be the difference between keeping the farm and selling it. The calculator does not model the instalment option — it shows the full liability.
What families are doing
Not advice — but these are the conversations happening:
- Using both spouses' allowances. Whether and how the £1,000,000 allowance works between spouses is the critical planning question, and the one most in need of confirmation against current guidance.
- Life cover in trust sized to the expected liability, to provide the cash without selling the asset.
- Lifetime transfers, accepting the seven-year exposure, and insuring the taper period.
- Keeping the estate below £2,000,000 where realistically possible, to preserve the residence band.
- Reviewing excepted assets — distributing surplus cash out of a trading company rather than letting it sit there unrelieved.
- Reviewing trust structures, where the interaction with the new allowance is a live question.
⚠ These rules are new and the detail matters. This page reflects the rules as legislated. Before acting on anything here — particularly on transferability between spouses and the treatment of trusts — check current HMRC guidance and take professional advice.
Put your own figures in: the calculator applies the £1,000,000 allowance, the 50% rate above it, the separate 50% for unlisted shares, and the residence band taper, and shows how much value stays in the taxable estate.
Common questions
What is the Business Property Relief allowance from April 2026?
From 6 April 2026, 100% relief applies only to the first £1 million of combined qualifying business and agricultural property. Value above that allowance attracts 50% relief, giving an effective Inheritance Tax rate of 20% on the excess. Qualifying unlisted and AIM-listed shares get 50% relief with no share of the £1 million allowance.
Does the £1m business relief allowance cover both business and farm assets?
Yes — it is a single combined allowance covering Business Property Relief and Agricultural Property Relief together. A farmer with £600,000 of agricultural property and £600,000 of business property has £1.2 million of qualifying assets and only £1 million of allowance between them.
What Inheritance Tax rate applies to business assets above £1m?
50% relief means half the value stays in the taxable estate, so the effective rate on the excess is 20% rather than 40%, assuming the estate's nil-rate bands are already used elsewhere.
Can Inheritance Tax on a business or farm be paid in instalments?
Yes. Tax on qualifying business assets, farmland, and certain shareholdings can be paid in ten equal annual instalments. Interest is charged on the outstanding balance, and the instalment option can be withdrawn if the asset is sold.
Is the £1m business relief allowance transferable between spouses?
This is one of the points that most needs checking against current HMRC guidance before you rely on it. The treatment of the allowance between spouses, and its interaction with trusts, materially affects planning for family businesses and farms.