The UK government announced last month that the new limit for agricultural and business property relief (APR/BPR) will be increased from £1m to £2.5m.
As outlined in last week’s edition (3 January 2026), initial analysis by the Irish Farmers Journal indicates that the change should lift the majority of NI farms out of the scope of inheritance tax.
A major factor is that the new £2.5m limit for individuals is transferable between spouses, so married couples effectively have an APR/BPR limit of £5m from April 2026.
Whilst larger farms in NI could still be impacted by inheritance tax, the new increase in the APR/BPR limit also reduces potential tax bills for these farms considerably.
Example farmer
To illustrate this point, take the example of a widowed farmer who owns 300 acres of prime land valued at £20,000/acre, equating to £6m.
On top of that, the value of his livestock comes to £1m plus his house, yard and machinery is worth a further £1.5m. Altogether, this farmer’s estate comes to £8.5m.
From April 2026, this farmer will have £2.5m of APR/BPR, plus another £2.5m is available from his already deceased wife.
Subtracting the combined APR/BPR total of £5m from the value of his £8.5m estate leaves it at £3.5m.
After that, there is 50% relief on APR/BPR qualifying assets, so that takes the estate value from £3.5m to £1.75m.
All individuals in the UK also have access to £325,000 of inheritance tax relief, known as the nil rate band.
The nil rate band has always been transferable between spouses, so it totals £650,000 for this widowed farmer and takes the estate value for tax calculations from £1.75m to £1.1m.
Finally, inheritance tax is charged at 40% on the £1.1m figure which leaves a tax bill of £440,000.
Other scenarios
Prior to December 2025, the UK government was planning for a £1m limit on APR/BPR for individuals which would be fully transferable between spouses.
For the above example, if we apply an APR/BPR allowance of £2m instead of £5m and follow through with the remaining calculations, it would leave a much higher tax bill of £1.04m.
Another scenario is the initial plan from October 2024 to November 2025 was that the £1m APR/BPR limit would not be transferable between spouses.
If that had been the case, then the example farmer would only have £1m of APR/BPR and would face an even higher inheritance tax bill of £1.24m.
The 50% relief on APR/BPR qualifying assets applies to the value of assets and not the tax rate. \ Ramona Farrelly
Inheritance tax calculation considerations
Various assumptions apply to the outlined example, including that the farmer has no debt which should be deducted from the value of the estate for inheritance tax calculations.
It also assumes that he owns no other assets, such as non-agricultural property or pension funds. The latter will be important after April 2027 when unspent pensions will be subject to inheritance tax.
It should also be noted that inheritance tax is not a foregone conclusion as timely succession planning based on professional advice can reduce or eliminate tax bills for large farms.
When assessing potential exposure to inheritance tax, remember that the tax is based on an individual person’s estate, so large farms that are owned by multiple people will have several APR/BPR allowances.
Also, it is incorrect to calculate potential inheritance tax liabilities by using a tax rate of 20%, which is based on the 50% relief, applying to the usual 40% inheritance tax rate.
HMRC has confirmed that the 50% relief on APR/BPR qualifying assets applies to the value of assets and not the tax rate.
While this may seem like a minor technical detail, it has important implications for tax calculations.
For the example farmer above, subtracting all allowances from the estate value then dividing by 20% leaves a tax bill of £570,000, which is £130,000 more than it should be.
The UK government announced last month that the new limit for agricultural and business property relief (APR/BPR) will be increased from £1m to £2.5m.
As outlined in last week’s edition (3 January 2026), initial analysis by the Irish Farmers Journal indicates that the change should lift the majority of NI farms out of the scope of inheritance tax.
A major factor is that the new £2.5m limit for individuals is transferable between spouses, so married couples effectively have an APR/BPR limit of £5m from April 2026.
Whilst larger farms in NI could still be impacted by inheritance tax, the new increase in the APR/BPR limit also reduces potential tax bills for these farms considerably.
Example farmer
To illustrate this point, take the example of a widowed farmer who owns 300 acres of prime land valued at £20,000/acre, equating to £6m.
On top of that, the value of his livestock comes to £1m plus his house, yard and machinery is worth a further £1.5m. Altogether, this farmer’s estate comes to £8.5m.
From April 2026, this farmer will have £2.5m of APR/BPR, plus another £2.5m is available from his already deceased wife.
Subtracting the combined APR/BPR total of £5m from the value of his £8.5m estate leaves it at £3.5m.
After that, there is 50% relief on APR/BPR qualifying assets, so that takes the estate value from £3.5m to £1.75m.
All individuals in the UK also have access to £325,000 of inheritance tax relief, known as the nil rate band.
The nil rate band has always been transferable between spouses, so it totals £650,000 for this widowed farmer and takes the estate value for tax calculations from £1.75m to £1.1m.
Finally, inheritance tax is charged at 40% on the £1.1m figure which leaves a tax bill of £440,000.
Other scenarios
Prior to December 2025, the UK government was planning for a £1m limit on APR/BPR for individuals which would be fully transferable between spouses.
For the above example, if we apply an APR/BPR allowance of £2m instead of £5m and follow through with the remaining calculations, it would leave a much higher tax bill of £1.04m.
Another scenario is the initial plan from October 2024 to November 2025 was that the £1m APR/BPR limit would not be transferable between spouses.
If that had been the case, then the example farmer would only have £1m of APR/BPR and would face an even higher inheritance tax bill of £1.24m.
The 50% relief on APR/BPR qualifying assets applies to the value of assets and not the tax rate. \ Ramona Farrelly
Inheritance tax calculation considerations
Various assumptions apply to the outlined example, including that the farmer has no debt which should be deducted from the value of the estate for inheritance tax calculations.
It also assumes that he owns no other assets, such as non-agricultural property or pension funds. The latter will be important after April 2027 when unspent pensions will be subject to inheritance tax.
It should also be noted that inheritance tax is not a foregone conclusion as timely succession planning based on professional advice can reduce or eliminate tax bills for large farms.
When assessing potential exposure to inheritance tax, remember that the tax is based on an individual person’s estate, so large farms that are owned by multiple people will have several APR/BPR allowances.
Also, it is incorrect to calculate potential inheritance tax liabilities by using a tax rate of 20%, which is based on the 50% relief, applying to the usual 40% inheritance tax rate.
HMRC has confirmed that the 50% relief on APR/BPR qualifying assets applies to the value of assets and not the tax rate.
While this may seem like a minor technical detail, it has important implications for tax calculations.
For the example farmer above, subtracting all allowances from the estate value then dividing by 20% leaves a tax bill of £570,000, which is £130,000 more than it should be.
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