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The countdown to inheritance tax (IHT) reform for farms and estates is underway, with significant changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) coming into effect on 6 April 2026.
In a rather last minute and unexpected move, the government has announced a softening of its proposed reforms, with an increase of the 100% relief allowance from £1 million to £2.5 million.
In less welcome news, the Chancellor announced the introduction of a new mansion tax-style surcharge on residential properties worth over £2 million, applying from April 2028.
Landed estates – often comprising a mixture of agricultural, business and high value residential assets – are likely to feel the combined impact of both of these reforms, as explored here.
Changes to APR and BPR
Under the original proposals, APR and BPR were to be restricted from 6 April 2026, with each individual (and certain trusts) having a £1 million allowance for assets otherwise qualifying for 100% relief. The latest announcement on 23 December 2025 confirms that this allowance will now be increased to £2.5 million, providing welcome breathing room for many rural businesses.
As announced at the Autumn Budget on 26 November 2025, the allowance will also be transferable between spouses and civil partners, enabling couples to shield up to £5 million of qualifying agricultural or business property from IHT on death.
Where the first spouse or civil partner dies before 6 April 2026 and the survivor after that date, the first spouse is treated as having a full 100% allowance available for transfer. Any assets above the individual or combined allowances will attract a default 50% APR and BPR, equating to an effective 20% IHT charge on qualifying agricultural and business assets above the threshold.
These reforms appear in the Finance (No.2) Bill 2024–26, which is progressing through Parliament and may still be amended before its implementation date.
Even with the enhanced allowances and transferability provisions, many estates will face heightened IHT exposure from April 2026.
The window for strategic planning is narrowing rapidly, and we encourage clients to:
- review ownership structures and consider generational transfers
- explore trusts or corporate structures to optimise tax outcomes under the current and future regimes and
- plan for liquidity to meet future IHT liabilities.
New Mansion Tax
In her Autumn Budget, the Chancellor also introduced a highly anticipated — and often debated — measure: an annual surcharge on high value residential properties.
This reflects the government’s broader shift towards taxing property wealth and aligns with its stated objective of increasing revenue from perceived concentrations of wealth.
From April 2028, owners of residential properties valued at over £2 million (as at 2026) will be liable for a recurring annual charge, known as the High Value Council Tax Surcharge, payable in addition to standard Council Tax.
The proposed structure is:
| Property Value | Annual Surcharge |
| £2m – £2.5m | £2,500 |
| £2.5m – £3.5m | £3,500 |
| £3.5m – £5m | £5,000 |
| £5m+ | £7,500 |
The HM Valuation Office will conduct a targeted valuation exercise to identify properties above the £2 million threshold, with revaluations every five years. Although collected by Local Authorities, the revenue will largely pass to central government. A public consultation in early 2026 will address reliefs, exemptions and rules relating to complex ownership structures such as companies, trusts, partnerships and investment vehicles.
The annual surcharge will apply to both primary residences and second homes, which means many landowners—particularly those with principal estate houses or large heritage properties—may fall within the regime.
For some, this may introduce cash flow difficulties, especially for estates that are asset rich but income poor, and especially where annual Mansion Tax liabilities coincide with increased IHT exposure arising from the APR/BPR restrictions.
Conclusion
The forthcoming APR/BPR reforms and the introduction of the mansion tax represent two significant shifts in the tax landscape for landed estates. While the measures operate independently, their effects will often overlap.
Estates that exceed their APR/BPR allowances may simultaneously fall within the mansion tax regime, creating both lump sum and recurring tax pressures. This combination increases the importance of proactive planning, not only to manage long term IHT exposure but also to ensure sufficient liquidity to meet annual property based charges.
Although further detail on the mansion tax will emerge through the 2026 consultation, the more immediate priority is the APR/BPR reform coming into force on 6 April 2026. By taking steps now, rural and landed estate owners can better protect the long term sustainability of their holdings and ensure that the transition into the new tax regime is as efficient and resilient as possible.