Chancellor Rachel Reeves has unveiled a significant shift in inheritance tax rules, offering a major financial reprieve to farming families and small business owners across the United Kingdom. The reform, announced by the Labour government, will allow married couples and civil partners to pass on up to £2 million of assets to the next generation completely free of inheritance tax.
What the New HMRC Rule Means for Families
The key change, set to take effect from April 2026, centres on the transferability of valuable tax reliefs. Currently, Agricultural Property Relief (APR) and Business Property Relief (BPR) can shield up to £1 million of qualifying assets from inheritance tax. However, if one partner died without using their full allowance, it was lost.
Under the new rules, any unused portion of this £1 million allowance can now be transferred to a surviving spouse or civil partner upon death. This brings the treatment of these reliefs in line with the standard nil-rate band and residence nil-rate band. Consequently, a couple could combine their allowances, enabling them to pass on a total of £2 million in farmland or business assets to their children without incurring any inheritance tax liability.
Industry Reaction: Relief and Continued Criticism
The announcement has been met with a mixed response from the agricultural community. Tax expert Dan Neidle described the move as a "sensible change" that would reduce the need for complex, long-term tax planning among farming families.
However, leading farming representatives argue the measure does not go far enough. Tom Bradshaw, President of the National Farmers' Union (NFU), acknowledged the government had accepted its initial proposals were flawed. "It’s good to see the government accepts its original proposals were flawed," he stated. But he added, "this change goes nowhere near far enough to remove the devastating impact of the policy on farming communities."
Bradshaw noted the change would assist widowed farmers but stressed it "does nothing to alleviate the burden it puts on the elderly and vulnerable," urging ministers to implement further supportive measures.
A Political Promise Under Scrutiny
The policy shift follows direct pressure from the farming sector, which felt overlooked by the new government. The sentiment was bluntly summarised by David Gunn, an arable farmer from near Sevenoaks in Kent, who directed a stark message to Labour: "You said in the manifesto you would look after the farmers, which you totally haven’t, you’ve ruined the countryside."
In a joint statement, HM Treasury and the Department for Environment, Food and Rural Affairs (Defra) clarified the reform's scope. They confirmed it will apply to widows and widowers, "including where the first death is many years before 6 April 2026," ensuring retrospective benefit for some. The government stated the aim is to make inheritance tax rules for those with agricultural and business assets "less complex and fairer."
While this revision provides clearer, more generous planning for family-run enterprises, it leaves unresolved the broader criticisms from the heart of the UK's farming community, setting the stage for continued debate on rural policy.
