Farm and business inheritance tax from April 2026: what East Yorkshire families need to do

Since 6 April 2026 the first £2,500,000 of qualifying farmland and business property that each person owns gets 100% inheritance tax relief. That allowance transfers between spouses and civil partners, so a married couple can shelter £5,000,000 between them. Everything above it gets 50% relief, an effective rate of 20%, and the tax on those assets can be paid over ten years with no interest. The £1,000,000 figure you may have read about was the original proposal and is out of date.

The figures on this page were checked on 14 September 2026 against GOV.UK and can change at any Budget.

The rules in full

Agricultural property relief covers the land. Business property relief covers the trading business. A working farm usually uses both, and since April 2026 they share one allowance. What qualifies:

• Farmland, and buildings occupied for agriculture, owned and farmed by you for at least two years, or owned for seven years while someone else farmed it.
• The farmhouse, but only where it is of a character appropriate to the land and is occupied for farming that land. A large house with a few acres usually fails.
• The trading business itself: machinery, livestock, stock and goodwill of a farm or any other business that trades rather than holds investments.
• Shares in an unquoted trading company, including a family company that owns the farm.

How the relief is worked out:

• The first £2,500,000 of qualifying property in each person's estate gets 100% relief.
• Any part of the allowance a person does not use transfers to their surviving spouse or civil partner, as the nil rate band does. A couple can therefore shelter £5,000,000.
• Qualifying property above the allowance gets 50% relief.
• Shares quoted on AIM get 50% relief only, with no £2,500,000 allowance.
• The tax on the relieved assets can be paid in ten equal annual instalments, interest free, as long as the assets are kept. Selling the land usually brings the balance due at once.

GOV.UK sets out the conditions for agricultural relief and for business relief on separate pages.

A worked example: a 400-acre farm near Driffield

A married couple own a 400-acre arable farm, half each. The land and buildings are worth £4,000,000. The farmhouse, which they live in and farm from, is worth £500,000 and passes the character test. To keep it simple, savings and machinery are left out and the residence nil rate band is ignored, as it tapers away on estates this size.

Before 6 April 2026, the whole £4,500,000 got 100% relief. Whatever the wills said, the tax on the farm was nil.

After 6 April 2026, with wills that use both allowances:

• First death. That person's half share is £2,250,000, inside their £2,500,000 allowance. Tax nil. £250,000 of unused allowance transfers to the survivor.
• Second death. The survivor's half share is £2,250,000, against an allowance of £2,750,000 once the transfer is added. Tax nil again.

Now change one fact. Suppose the husband owns the whole farm in his sole name, as is common on older holdings, and his will leaves it straight to the son. His £4,500,000 sits against one allowance of £2,500,000. The £2,000,000 above it gets 50% relief, leaving £1,000,000 chargeable. After his £325,000 nil rate band, £675,000 is taxed at 40%. That is £270,000 of inheritance tax, or £27,000 a year for ten years with no interest. His wife's allowance is wasted because she owns nothing it could shelter.

Why wills written before 2026 can waste an allowance

Before April 2026 the relief was 100% with no cap, so the wording of a farming will made no difference to the tax. Many wills leave the farm straight to the children, or straight to the survivor, without anyone thinking about it. There are now two ways to use the allowances.

• Use it on the first death. The will leaves the farm, or enough of it to fill the £2,500,000 allowance, to the children or into a trust for them when the first spouse dies. Anything above the allowance left to the children is taxed at the effective 20% then, rather than on the second death.
• Let it transfer. The will leaves everything to the surviving spouse. The spouse exemption means nothing is taxed on the first death, and the unused allowance moves across, so the survivor has £5,000,000 of cover.

Neither is right in every case. If one spouse owns most of the land, leaving it straight to the children on the first death can leave the other spouse's allowance with nothing to shelter. If the survivor is not going to farm, letting the land pass to them can put business relief at risk, because the business has to be trading in the hands of the person who dies. The answer depends on who farms on, how the land is owned, and what else is in each estate.

The guide to inheritance tax thresholds covers the nil rate band and residence nil rate band, which sit alongside the reliefs on this page.

Lifetime planning that still works

• Gifts more than seven years before death. A gift of land to a child is a potentially exempt transfer. Live seven years and it falls out of your estate. Die within seven years and it is brought back in, though relief can still apply if the child still owns and farms the land at your death.
• Gifts of land to the child who farms. Parcels handed over in stages use the seven year rule and keep the land in a trading business.
• A written partnership agreement. Bringing a child into the partnership, and recording what is partnership property and what is owned outside it, affects which relief applies and at what rate.
• Life cover for the instalments. A term policy written in trust for the children, sized to the expected tax, can pay the ten instalments without selling land or borrowing.

The danger is the gift you keep using. Give land to your son but carry on farming it and keeping the income, or give away the farmhouse and stay in it rent free, and HMRC treats it as a gift with reservation of benefit. It stays in your estate whatever the seven years say. A gift only works if you actually let go, or pay a full market rent for what you keep using.

What does not work

• The seven year rule for care fees. That is an inheritance tax rule and has nothing to do with paying for care. If a local authority decides land was given away to avoid care fees it can treat you as still owning it, with no time limit. In England capital over £23,250 pays for care in full.
• Moving land into a trust without advice. A lifetime transfer into most trusts is a chargeable transfer. Value above the reliefs and above your £325,000 nil rate band is taxed at 20% on the way in, and the trust then faces its own charges every ten years. A trust can still be the right tool, but only once the sums have been done.
• Assuming the farmhouse qualifies. A retired farmer who has handed the land to a child but stays in the house, or a house out of proportion to the acreage, usually gets no relief on the house at all.

The guide to inheritance tax planning with trusts explains the entry, ten year and exit charges.

What to do now

• Value the farm. Ask a land agent for a written open market valuation of the land, buildings and house, split by owner.
• Read the wills. Find out what each will does with the farm on the first death, and whether it was written before 2026. Most were.
• Check the ownership and partnership papers. Whose name is on the Land Registry title for each parcel, whether there is a written partnership agreement, whether any land is let, and whether the farmhouse is owned with the land.
• Get the accountant and a solicitor in the same room. The accountant knows the business figures and the capital gains position. The solicitor drafts the wills, the partnership agreement and any trust. Done separately, they often pull in different directions.

Next steps with Aaron

Aaron Johnson is a consultant solicitor and a full member of STEP, regulated through Legal Studio Solicitors, working from Bridlington. A farm succession review, covering the wills, the ownership papers and the allowances, is part of his estate and tax planning service. Trust wills for a couple are a separate fixed item. Each piece is a fixed fee, agreed in writing before any work starts, never by the hour. He visits farms across East and North Yorkshire, so the meeting can be at your kitchen table.

A free 15-minute call is the place to start. Aaron will say plainly whether the farm is likely to be inside or outside the allowance, whether the wills need changing, and what it would cost. If you are not sure which service fits, the Plan Finder asks a few questions and points you to the right one.

This page is general information about the law of England and Wales as at 14 September 2026. It is not legal advice, and the right answer for your family depends on your own facts.