Agricultural Property Relief (APR) and Business Property Relief Commentary (BPR)

23rd July 2025

James Farrell, Head of Rural Consultancy, Knight Frank comments on the latest proposals.

The Government has today published draft legislation confirming its planned reforms to Agricultural Property Relief (APR) and Business Property Relief (BPR).

First proposed in the Autumn 2024 Budget, these changes will see relief fall from 100% to 50% on any qualifying value above £1 million, effectively opening up farming families and diversified rural businesses to a level of inheritance tax exposure unseen for generations.

And let's be clear, a £1 million threshold is all but meaningless in the context of modern farming. The capital required to operate even a modestly sized agricultural business far exceeds that figure. This is not a tax on excess; it is a tax on resilience, on succession, and ultimately, on viability.

Many had hoped the Government would reconsider. As we saw with winter fuel payments and disability benefits, it has proved willing to change course under pressure. Rural communities were right to expect the same recognition for the essential contribution they make to national life - securing our food supply, improving public health, sequestering carbon and reversing biodiversity loss. These aren't peripheral goals, but foundational to the UK's ability to withstand and adapt to global pressures and the existential threats that we face today.

Our call in October 2024 was that Ministers would grasp the scale of these implications ahead of the reforms taking effect in April 2026, and use the time to deliver a more coherent policy framework - one that supported the farm businesses at the heart of delivering solutions to so many of society's big issues, provide investors with confidence and ensure that land managers were equipped to meet the multiple, and often competing, demands of food production, climate action, environmental enhancement and community value. Today's publication suggests otherwise.

The protests seen across the UK - tractor convoys in Westminster and widespread public support - made it clear that this was not a niche concern. They helped the country pause and reflect on the vital role our farmers play. Unfortunately, that message seems to have fallen on deaf ears.

We do not underestimate the Government's task in balancing the books. But it is particularly surprising to see the lack of response to the business community, which has made plain the impact on jobs and the broader consequences of this policy. The reality is that BPR, not APR, is the true time bomb here. That Ministers have ignored the wider business lobby, at a time when they are also championing growth and innovation, is a contradiction they have yet to reconcile. These were, after all, Labour-originated reliefs, introduced during periods of national economic stress to help family businesses underpin the recovery. It is disheartening to see that history forgotten.

The impact will be uneven but serious. Long-standing family businesses, encouraged to diversify, to modernise, to innovate and lead on environmental delivery, now face a triple bind: higher tax, reduced support and rising operational pressure. And while tenant farmers will not face inheritance tax on land they farm, they will be hit by the changes to BPR and pensions and the knock-on effects on landlords and future tenancies cannot be ignored.

At a time when the sector is already struggling, due to rising costs, labour shortages, and policy volatility this legislation risks being the final straw for some.

Looking forward, the timeline for action is narrowing. While we will continue to advocate for a more balanced and supportive approach, landowners must now focus on preparation. That means understanding the value of their holdings and financial implications of the tax charge, stress-testing succession plans and the business restructuring that may be necessary as part of these, assessing practical options, such as the use of conditional exemption and lifetime gifts, reviewing trust arrangements, and understanding how life insurance might help.

While this may prove to be the biggest generational shift in rural business planning for decades, there are options, which Knight Frank is supporting clients to navigate. For those not already focused on this issue now is the time to act. Being prepared for what is coming is essential.

Knight Frank LLP is the leading independent global property consultancy, serving as our clients' partners in property for more than 125 years. Headquartered in London, Knight Frank has 27,000+ people operating from 740+ offices across 50 territories. The Group advises clients ranging from individual owners and buyers to major developers, investors and corporate tenants.

Pros and Cons of UK Agricultural Property Relief (APR) and Business Property Relief (BPR)

Agricultural Property Relief (APR)
Pros
100% relief on the first £1 million of qualifying agricultural assets (land, farm buildings, farmhouses) from 6 April 2026.

Protects family farms by significantly reducing or eliminating Inheritance Tax on land used for agriculture.

Farmhouses and cottages can qualify if occupied for agricultural purposes by current or retired farm workers, with cases hinging on "character appropriate" tests to support real farming use.

Estates with APR-eligible property can elect to pay any Inheritance Tax due by equal, interest-free annual instalments over 10 years, easing cash flow for heirs.

Cons
Strict occupancy and qualification rules: owner-occupied land needs at least two years' occupation; let land must be owned for seven years before relief applies.

Disputes over what constitutes an "appropriate" farmhouse or buildings often arise, requiring detailed evidence of agricultural operations and decision-making centred on the property.3

From April 2026, any value above £1 million only receives 50% relief, reducing tax savings for larger estates and potentially increasing IHT bills.

Agricultural value (used for relief) is often discounted from market value, but the lack of a fixed percentage can lead to HMRC challenges and valuation disputes.

Business Property Relief (BPR)
Pros
100% relief on the first £1 million of combined APR and BPR-qualifying assets from 6 April 2026; any excess receives 50% relief, maintaining support for smaller businesses.4

Provides full relief for unquoted trading businesses, shares controlling unlisted companies, sole traders, partnerships, and qualifying AIM-listed shares held for at least two years.

Two-year ownership test is shorter than the seven years required for potentially exempt transfers, accelerating estate planning benefits.

Cons
The business must not consist “wholly or mainly” of dealing in investments, property or shares; breaching this can nullify relief on the entire asset (an “all or nothing” trap).

Surplus cash or assets held without genuine trading use are treated as excepted assets, limiting relief and complicating corporate cash management.

AIM-listed shares lose 100% relief, dropping to 50% irrespective of value from April 2026, diminishing their attractiveness in IHT planning.

The £1 million BPR allowance is not transferable between spouses; unused relief is lost, necessitating careful joint-ownership structures to maximise reliefs.

Potential Impacts of APR and BPR Changes
Impact on Estates and Taxpayers
Above the £1 million combined relief allowance, qualifying assets receive 50% relief instead of 100%, increasing Inheritance Tax bills on larger estates.

The government expects only around 2,000 estates per year to be affected by the cap, with roughly 500 claiming APR and 1,000 holding “not listed” shares.

The Office for Budget Responsibility estimates the reforms will raise £1,765 million over four years, though this carries a high uncertainty rating due to behavioural responses.

Impact on Family Businesses and Farms
Average investment among affected family firms is projected to fall by 15.7%, turnover by 9.2%, and headcount by 8.8%, as owners adjust strategies ahead of the cap.

The wider economy could lose £14.865 billion in Gross Value Added due to reduced activity in supply chains and household spending.

Employment impacts amount to about 208,500 full-time equivalent jobs lost over the parliamentary term.

When accounting for behavioural changes, net tax receipts fall by £1.876 billion, offsetting some of the static revenue gain.

Impact on the Agricultural Sector and Land Management
Over 4.8 million acres of UK farmland may be at risk if owners can no longer claim full APR on larger estates, threatening long-term stewardship.

From 6 April 2025, APR will extend to land under government-approved environmental land management agreements, rewarding sustainable practices and partially mitigating losses.

Behavioural and Planning Impacts
Anti-forestalling rules mean gifts made on or after 30 October 2024 (and deaths on or after 6 April 2026) will count under the new cap, driving a surge in lifetime transfers ahead of deadlines.

Trusts face a single £1 million allowance per ten-year charge period; families creating multiple trusts risk diluting relief unless they consolidate or apportion ahead of 30 October 2024.

Heirs will need robust cashflow plans: IHT on APR/BPR assets can be paid in ten interest-free instalments, but financing these liabilities may require asset sales or borrowing