The Agricultural Property Relief (APR) has been in the news since the Labour Government announced changes in the budget. Farmers have taken to the streets of Westminster in their tractors to protest the changes.
But what is the fuss all about?
Well, APR is basically a tax break that helps farmers and landowners pass on their farming businesses to the next generation without incurring a massive inheritance tax bill.
We look into the most asked questions about the relief and answer (at the end) why farmers took to the streets.
What is agricultural property relief?
In plain terms, it means that when someone who owns a farm or farming business passes away, their family won’t have to pay inheritance tax on the agricultural parts of the property – which could be as much as 100% relief in many cases.
To qualify, the property needs to be proper farming land or buildings that are actually used for agriculture – so we’re talking about things like:
- Farmland
- Farm buildings
- Farmhouses
- Grazing fields
- Crop-growing areas
It was originally introduced to help keep family farms ‘in the family’, without relatives having to sell off bits of the farm just to pay the tax bill when the farm owner dies.
It’s worth noting that you can’t just buy a farm and expect to get the tax relief straightaway. The property must have been owned and used for farming for at least two years if you’ve been farming it yourself or seven years if you’ve been letting someone else farm it.
When was agricultural property relief introduced?
The APR has quite a long history in British tax law. It was officially established in its current form by the Inheritance Tax Act 1984, but its roots actually go back further than that.
There were earlier versions of the relief in the 1970s under the Finance Act 1975, which shows the UK government has been helping protect farming assets from inheritance tax for quite some time.
Here is a timeline overview:
- Mid-1970s: The early version appears
- 1984: APR as we know it today is properly set up
- 1995: Important changes to how it works with tenancies
- 2024: Major changes announced by Rachel Reeves in the October 2024 budget
- 2026: New rules coming in that will cap the relief at £1 million
The interesting thing is that while it’s been around for about 40 years in its current form, it’s about to see its biggest change yet when the new rules kick in on 6 April 2026. This change will limit how much relief larger farming estates can claim without paying any inheritance tax.
How much is agricultural property relief?
With the relief at this moment (April 2025), depending on the circumstances, you either get 100% or 50% off the inheritance tax bill on farming property.
You can get 100% relief if:
- You own and farm the land yourself
- The land is let to someone else on a short-term grazing licence
- The land is farmed under a contract farming arrangement
- The land is let on a farm business tenancy that started after September 1995
You get 50% relief if:
- The land is let to someone else under older tenancy agreements
To explain this with the current rules as of April 2025.
Let’s say you inherit a farm worth £1 million that qualifies for 100% relief. Without APR, you might have had to pay an inheritance tax of £400,000 (40% of the value). But with the full relief, you wouldn’t pay any inheritance tax at all on that farming property.
If the farm is worth £2 million, all the ‘agricultural value’ currently qualifies for 100% relief. So, instead of paying an inheritance tax rate of 40% on this (=£800k), no tax is charged.
Remember, though, that this only applies to property used for agricultural purposes. Things like holiday cottages on the farm or land used for other diversified business purposes wouldn’t qualify for APR (though they might qualify for other types of tax relief). Livestock and farm machinery or equipment also do not qualify.
But in April 2026, these rates will change; keep reading to discover why.
How does agricultural relief work (with examples)?
Here is an explanation of how Agricultural Property Relief works, with example inheritance tax calculations.
The relief reduces or eliminates inheritance tax on farming assets by looking at two main things:
- The agricultural value of the property
- Whether you qualify for 100% or 50% relief
Example 1 – A Simple Farm (Current Rules)
- Farm value: £2 million (all agricultural value)
- The farmer owns and farms it himself
- Owned for more than 2 years
Calculation:
- Qualifies for 100% relief
- Tax due = £0
Example 2 – Farm with Development Potential (Current Rules)
- Total market value: £3 million
- Agricultural value: £1 million
- Development potential value: £2 million
- Owner actively farms land
Calculation (unless Business Property Relief applies):
- 100% APR on £1 million agricultural value = £0 tax
- The remaining £2 million could be subject to 40% inheritance tax = £800,000 tax
Example 3 – Let Farm (Current Rules)
- Farm value: £1.5 million
- Let on an old tenancy agreement
- Owned for 8 years
Calculation:
- Qualifies for 50% relief
- £750,000 remains taxable
- Tax due at 40% = £300,000
And it’s also worth noting that:
- You need to claim the relief – it’s not automatically awarded
- The property must still be owned at death (or given away in the seven years before death)
- Other buildings or land used for non-farming purposes won’t qualify
- You might need professional advice to make sure you’re claiming correctly
What qualifies for agricultural relief?
To qualify for this relief, the farm property must meet HMRC’s criteria. Understanding what does and doesn’t qualify is crucial for farmers and landowners planning their estates.
Here is a breakdown of what qualifies for APR:
- Farmland used for growing crops or rearing animals
- Stud farms for breeding and rearing horses
- Farm buildings, like barns and machinery storage
- Farmhouses (if they’re the right size and character for the farm)
- Farm cottages (with specific occupation requirements)
- Woodland that’s part of the working farm (not for commercial timber production)
- Fish farms (the buildings and ponds, but not streams or fish for sport)
- Land under the Habitat Scheme
HMRC has set minimum ownership periods to prevent abuse of the relief:
- If owner-occupied: must be owned for at least 2 years
- If occupied by others: must be owned for at least 7 years
To ensure the relief is properly targeted at genuine farming businesses, there are specific requirements:
- The land must be actively used for agriculture
- Can be owner-occupied or let
- It must be used for farming right up until the owner’s death
These are limitations applied to the relief; these items specifically don’t qualify:
- Farm shops
- Holiday cottages on the farm
- Land used for horses (unless they’re farm horses)
- Processing facilities (like a cheese-making plant)
- Storage areas for non-agricultural items
- Landscaped gardens
- Land used for shooting or hunting
- Farm equipment and machinery
- Derelict buildings
- Harvested crops
- Livestock
- Property under a binding contract for sale
The key thing is that the property must be genuinely used for farming – you can’t just buy some land and expect to get the relief without it being properly farmed. Farmhouses must also be occupied by someone involved in farming.
Finally, it’s worth noting that you cannot claim both Agricultural Relief and Business Relief on the same asset, but Business Relief might be available for values not covered by Agricultural Relief if you’re running a farming business.
If you are unsure whether your property qualifies, it’s worth checking with a tax adviser specialising in agricultural matters.
Is agricultural property relief transferable?
The short answer is that APR itself isn’t directly transferable, and this is being reinforced with the upcoming rule changes in 2026 – as the government has stated explicitly that the allowance is not transferable between spouses or civil partners.
However, under the current position, property transferred to spouses or civil partners is exempt from inheritance tax, as other inheritance tax benefits remain transferable, such as the nil-rate band. Spouses still benefit from the unlimited spouse exemption on transfers between them.
How it works between spouses:
- When a farmer dies and leaves agricultural property to their spouse or civil partner, it’s completely free of inheritance tax anyway (thanks to the spouse exemption)
- The surviving spouse then “inherits” the deceased partner’s ownership period
- This means they don’t have to start the 2 or 7-year qualifying period from scratch
For example, if a farmer owned and farmed the land for 5 years before dying and left it to their spouse, the spouse would also be treated as having owned it for 5 years. They wouldn’t need to start the 7-year clock ticking again.
Important points to remember:
- The relief stays with the qualifying property
- If the property is sold, the relief doesn’t transfer to other assets
- You can’t transfer the relief to non-agricultural property
- The property must continue to be used for agriculture to maintain the relief
Given these complexities, professional advice is strongly recommended for estate planning, particularly for farming estates worth more than £1 million, to ensure both spouses’ allowances are maximised effectively.
Will agricultural property relief be abolished?
At present (2025), there is no plan to abolish APR, but it is facing its biggest change since its establishment.
The current position, running until 2026, maintains APR in its existing form, providing either 100% or 50% relief, depending on circumstances. However, significant reforms are on the horizon rather than complete abolition.
These changes are being introduced because the government wants to target wealthy landowners who might be using the relief purely for tax planning purposes.
There have been concerns about farmland being bought primarily for tax advantages rather than genuine farming activities. The reforms aim to make the system fairer while still protecting genuine farming businesses.
The bottom line: While nothing in tax law is set in stone forever, there’s currently no immediate threat to APR being removed altogether.
Changes To Agricultural Property Relief Under Labour Government
Based on Rachel Reeves’s recent Autumn Budget 2024 announcement, the Labour Government has outlined significant changes to APR that will come into effect in April 2026.
This is the most substantial reform to the relief since its introduction.
The cornerstone of these changes is the introduction of a £1 million cap on assets eligible for 100% relief. Any value above this limit will only qualify for 50% relief. Importantly, this cap will apply to combined APR and Business Property Relief (BPR) assets, meaning farmers who benefit from both reliefs will need to consider their position carefully.
For example, if the farm is worth £1.5 million, the first £1 million qualifies for 100% relief. However, the remaining £500k only qualifies for 50% relief. Using an inheritance tax rate of 40% means it is taxed at £500,000 x 50% x 40% = £100,000 of inheritance tax is due.
According to HMRC estimates, approximately 2,000 estates will face increased tax bills. Of course, the government’s position is that these changes will only affect a “wealthy minority, ” with most farming estates remaining unaffected.
However, this view has been met with opposition in Parliament, and the farming community has also expressed serious concerns about these changes – hence the protests.
The Country Land and Business Association suggests the impact could be far more widespread than government estimates, potentially affecting up to 70,000 farms.
For farming families and estate owners, it’s crucial to note that the current system remains in place until April 2026. This offers affected parties an opportunity to seek professional advice and adjust their succession planning.
Further information on the changes to inheritance tax for combined agricultural and business property is available in the House of Commons Library.
Financial Advice
Evangate FS helps farmers every day get the best deals on agriculture finance for farm building loans, tractors, livestock, agricultural land, and farmhouse mortgages.
While we don’t offer advice on obtaining relief from inheritance tax or Business Property Relief, we know people who can help.
Please get in touch if you would like help arranging asset finance or if you want advice on APR.
