From 6 April 2026, 100% agricultural relief and business relief are limited to a combined £2.5 million of qualifying property per person, and any qualifying value above that gets 50% relief instead, an effective Inheritance Tax rate of 20%. The allowance is used first by gifts of qualifying property made on or after 30 October 2024 within seven years of death, in date order, and the rest is shared proportionally across the estate. Unused allowance of a late spouse or civil partner can be claimed by the survivor’s estate, giving up to £5 million.

What does the allowance limit?

The rule is in section 124D of the Inheritance Tax Act 1984, inserted by Schedule 12 to the Finance Act 2026. For an individual, the allowance on any chargeable transfer, including death, is £2.5 million less any allowance already used by chargeable transfers in the previous seven years (IHTM25510 and IHTM25520). It covers agricultural and business property together, so a farm and a trading company share one allowance. Property above the allowance still gets relief, but at 50%.

Three points define the scope:

  • Only property that would otherwise get 100% relief counts. Shares traded on markets that do not meet HMRC’s definition of listed, such as AIM, now get only 50% relief and do not use the allowance (IHTM25570). The same applies to other assets that only ever got 50%, such as a controlling holding in a listed company.
  • Gifts before 30 October 2024 are outside the rules. If they qualified, 100% relief on them is unlimited and they do not reduce the allowance.
  • Transitional gifts count. A gift made between 30 October 2024 and 5 April 2026 uses the allowance if the donor dies on or after 6 April 2026 and within seven years of the gift (IHTM25521).

The general conditions for business relief and agricultural property relief still apply first. The allowance only decides the rate.

In what order is the allowance used?

GOV.UK says the allowance must be applied in date order, starting with the earliest qualifying lifetime gift from 30 October 2024, with any balance shared across all qualifying property in the estate on death. HMRC’s apportionment guidance adds that you cannot apply the allowance to a single chosen asset, and that where property qualifies for both reliefs, agricultural relief applies instead of business relief.

At death the balance is spread in proportion to value across every title in the estate, including the free estate, an interest in possession trust treated as part of it and property subject to a reservation of benefit (IHTM25524). Where several lifetime transfers are made on the same day and together exceed the available allowance, it is apportioned between them in the same way (IHTM25523). HMRC provides an online tool for estates with up to eight agricultural and eight business assets.

Because the seven year look back works like the seven year rule for gifts, an early gift that survives seven years stops using the allowance. HMRC’s own example shows a 2027 gift falling away by a 2034 death, while a 2028 gift still uses £1.5 million of the allowance.

Why does property left to a spouse not use the allowance?

The allowance applies only to chargeable transfers. Property passing to a spouse, civil partner or charity is exempt, so it uses none of the allowance (IHTM25520). HMRC notes that relievable property passing to an exempt beneficiary is treated as qualifying for only 50% relief where a value is needed for other calculations, for example under the section 39A rules for partly exempt estates.

This has a planning consequence. On the first death, qualifying property can either pass to children, using some or all of the allowance now, or pass to the surviving spouse, keeping the allowance unused so that it can be transferred later.

How does unused allowance pass to a surviving spouse?

Section 124E lets the estate of a surviving spouse or civil partner who dies on or after 6 April 2026 claim the unused allowance of the first to die. The transfer works like the transferable nil rate band, as a percentage (IHTM25537):

  1. Take the allowance in force at the first death and deduct the 100% relief used on chargeable transfers in the seven years to that death, including the death estate.
  2. Express the unused amount as a percentage of the allowance at the first death.
  3. Apply that percentage to the allowance in force at the survivor’s death and add it to the survivor’s own allowance.

If the first spouse died before 6 April 2026, the full £2.5 million is treated as unused, even if their estate claimed business relief. The first estate does not need to have contained any qualifying property. For civil partners, the first death must be on or after 5 December 2005 (IHTM25531 and IHTM25532).

The personal representatives claim on form IHT437 with the IHT400. The time limit is four years from the end of the month of the survivor’s death or, if later, six months after the personal representatives first act. HMRC can extend it, and a claim can be withdrawn up to one month after the period ends (IHTM25533 and IHTM25534).

How does the allowance apply to trusts?

Trusts get their own rules, set out from IHTM25550:

  • Pre commencement settlements are trusts created before 30 October 2024 that held agricultural or business property immediately before that date which would have qualified for 100% relief under the new rules. They keep unlimited 100% relief on qualifying property until their first ten year anniversary on or after 6 April 2026, when they receive their own £2.5 million allowance (IHTM25551).
  • Other relevant property trusts acquire allowance each time the settlor makes a chargeable transfer of 100% relievable property into them on or after 30 October 2024, capped at £2.5 million across all trusts made by the same settlor (IHTM25552).
  • Certain special trusts have a £2.5 million allowance, and 18 to 25 trusts have one for each qualifying beneficiary (IHTM25510).

IHTM25551 refers to the allowance being increased by indexation after 6 April 2031, so the figure is not fixed permanently.

Can the tax on the excess be paid by instalments?

Yes. Tax on property qualifying for agricultural or business relief can be paid in ten equal yearly instalments, the first due six months after the end of the month of death. For assets inherited from 6 April 2026, these instalments are interest free if paid on time. The election is made on the IHT400. See paying Inheritance Tax by instalments.

A worked example

Illustration only. Margaret’s husband died in 2022, leaving everything to her. Margaret dies in 2028, leaving everything to her children. She made no lifetime gifts. Her estate includes a farm with an agricultural value of £3.5 million, unquoted trading company shares worth £2.5 million and AIM shares worth £400,000.

  • Her allowance is £2.5 million plus £2.5 million transferred from her husband, as he died before 6 April 2026: £5 million, claimed on IHT437.
  • Qualifying 100% property totals £6 million. The farm takes 3.5/6 of £5 million (£2,916,667) at 100%, leaving £583,333 at 50%, so £291,667 is chargeable.
  • The company shares take 2.5/6 (£2,083,333) at 100%, leaving £416,667 at 50%, so £208,333 is chargeable.
  • The AIM shares get 50% relief only and do not use the allowance: £200,000 is chargeable.

A total of £700,000 is chargeable from these assets, before the nil rate band and other exemptions. Without the transferred allowance, the excess over the allowance would have been £3.5 million, and the chargeable amount from the farm and company shares would have been £1.75 million instead of £500,000.

What mistakes do people make?

  • Assuming the allowance can be pointed at one asset. It must be apportioned across all qualifying property.
  • Forgetting that gifts since 30 October 2024 can use the allowance before the estate does.
  • Failing to claim a late spouse’s allowance on IHT437 within the time limit.
  • Treating AIM shares as part of the £2.5 million calculation. They are relieved at 50% outside it.
  • Assuming a farm or business passing to a spouse uses up the allowance on the first death.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.