The new rules will come into effect from 6 April 2026 and will significantly change the current regime raising an estimated £1.6bn over the parliament.

However, the changes are not as radical as originally expected with some reliefs on the first £1m of a qualifying property, which will be welcomed, although the farming community has slated the decision, claiming it threatened food stability.

The first £1m for business property and agricultural property relief will be exempt from inheritance tax, covering combined assets, with 50% relief thereafter.

It is important to note that the reliefs kick in after the standard inheritance tax allowance of £325,000 per individual, £650,000 per couple and the additional nil-rate band for property bringing the total tax-free allowance to £1m. Effectively this would give farmers an inheritance tax cushion of £2m.

If the total value of the qualifying property to which 100% relief applies is more than £1m, the allowance will be applied proportionately.

This means the allowance will cover £1m of property qualifying for business property relief, or a combined £400,000 of agricultural property relief and £600,000 business property relief qualifying for 100% relief.

Assets automatically receiving 50% relief will not use up the allowance and any unused allowance will not be transferable between spouses and civil partners.

Non-farmers bought more than half of the farms and estates sold on the open market in England in 2023, according to Strutt & Parker’s Farmland Database. Only 44% of sales were to farmers.

While the inheritance tax changes will capture weahlthy high profile farm owners, there are huge concerns about the impact on multi-generational farms which have been handed down over decades to the family. These farms are the least likely to be able to afford an inheritance tax bill in the event of the death of a family farm owner.

NFU president Tom Bradshaw said: ‘This Budget not only threatens family farms but will also make producing food more expensive. This means more cost for farmers who simply cannot absorb it, and it will have to be borne by someone.

‘The shameless breaking of those promises on agricultural property relief will snatch away much of the next generation’s ability to carry on producing British food, plan for the future and shepherd the environment.

‘It’s clear the government does not understand that family farms are not only small farms, and that just because a farm is a valuable asset it doesn’t mean those who work it are wealthy.’

The measure will affect property in the estate at death, lifetime transfers to individuals in the seven years before death (‘failed potentially exempt transfers’) and chargeable lifetime transfers where there is an immediate lifetime charge, so for example when property is transferred into trust.

Sam Dewes, private client partner at HW Fisher said: ‘Where an individual’s combined value of their business or agricultural assets exceeds £1m, inheritance tax will be charged at 20%.

‘Previously these reliefs meant that businesses and farms could often be passed down a generation without any IHT. The Chancellor saw these reliefs as ripe for abuse. However, they protect the UK’s numerous business owners and farmers from having to sell up to pay for the tax. As such, this change could see tax motivated lifetime giving or exits, when this may not be the best outcome for the business.’

The government said ‘almost three-quarters of estates claiming agricultural property relief and the majority of estates claiming business property relief in 2026 to 2027 are expected to be unaffected by these reforms’.

The reliefs will be better targeted in future ‘as it is not fair or sustainable for a very small number of claimants each year to claim such a significant amount of relief. This also contributes to the very largest estates paying lower average effective inheritance tax rates than smaller estates’.

The tax changes are expected to affect around 2,000 estates each year from 2026 to 2027, with around 500 farms claiming agricultural property relief and around 1,000 holding affected shares.

Hed Amitai, private client partner at Hill Dickinson said: ‘The reduction of business and agriculture reliefs for assets worth over £1m to a rate of 20% will be a major blow to business owners who have worked tirelessly to make family businesses grow, only to see that being taken from their loved ones.

‘We deal with a substantial number of business owners, and the reduction in business relief is a big problem for them. It will mean that on the death of the business owner, the family will need to either sell the whole business or find funding to finance the tax due.’

On the share front, there will no longer be 100% relief on shares of stocks listed on AIM sitting in estates. Shares classified as ‘not listed’ will in future qualify for only 50% relief for ‘not listed’ shares on the markets of a recognised stock exchange.