On a farm, agricultural relief is applied first to the agricultural value of farmland, farm buildings and qualifying houses, and business relief can then cover other business value such as machinery, livestock and development value of buildings used in the business. From 6 April 2026 the two reliefs share one £2.5 million allowance for 100% relief per person, which on death is spread across all qualifying property in proportion to value rather than used on farmland first.

Why can executors not choose between the two reliefs?

Neither relief is claimed in the ordinary sense; both apply automatically if the conditions are met. Section 114(1) of the Inheritance Tax Act 1984 (IHTA 1984) then says that any part of the value transferred that is reduced by agricultural relief, at whatever rate, cannot also be reduced by business relief. The effect, as HMRC explains at IHTM24151, is that agricultural relief has priority and the taxpayer cannot pick the more generous relief for the same value. Business relief remains available on value that agricultural relief does not touch, provided that value is relevant business property under section 105(1).

Which relief covers which farm asset?

The table summarises HMRC’s guidance for a farmer who farmed in hand. The conditions for each relief still have to be met, including two years’ ownership for business relief and the occupation or ownership periods for agricultural relief.

Asset Agricultural relief Business relief
Farmland and farm buildings, up to agricultural value Yes, first Not on the same value
Development, hope or mineral value of farmland or buildings used in the business No Possibly, if owned by a sole trader or as a partnership asset
Machinery, livestock and harvested crops No Yes, as part of the business
Residential premium on the farmhouse No Not usually, because its main use is as a home
Farmland owned personally but farmed by the deceased’s partnership Yes, on agricultural value 50% on any excess value
Farmland let to an unconnected tenant farmer Yes, if the conditions are met Rarely

The source for the business relief column is IHTM24151; GOV.UK’s agricultural relief guidance confirms that machinery, livestock and harvested crops do not qualify for agricultural relief. HMRC warns that traditional buildings with conversion value often fail for business relief because they have not been used in the business for years. For the farmhouse tests, see agricultural relief on farmhouses.

How is one farming business split between the reliefs?

HMRC’s example at IHTM25121 shows the method. A working farmer’s business has machinery and stock of £150,000 and farmland worth £800,000, all agricultural value, with business debts of £75,000. The business is relevant business property worth £875,000. If the debts are not secured on the farmland, agricultural relief covers £800,000 and business relief the remaining £75,000. If the debts are secured on the farmland, section 162(4) requires them to be deducted from the farmland first, so agricultural relief covers £725,000 and business relief £150,000. Before April 2026, with both reliefs at 100%, the split did not change the tax, and HMRC normally accepted the taxpayer’s allocation. It can now change who bears tax and how much, because of the shared cap.

What changed on 6 April 2026?

Section 116(1) now gives agricultural relief at 50% as the base rate. Section 116(1A) gives 100% only on chargeable transfers, only where the transferor’s interest condition is met, and only up to the 100% relief allowance in section 124D. Business relief works the same way through section 104(1A). Under section 124D(2) the allowance is £2.5 million less the 100% relief already used by chargeable transfers in the previous seven years. Points that catch executors out:

  • Gifts of qualifying property made on or after 30 October 2024 use the allowance if the donor dies on or after 6 April 2026 within seven years (IHTM25521).
  • Property passing to a spouse or civil partner is exempt and does not use the allowance; it is treated as qualifying for 50% relief only (IHTM25520).
  • Shares on markets that are not listed for HMRC purposes, such as AIM, get 50% relief and do not count towards the allowance (IHTM25510).
  • Unused allowance of a late spouse or civil partner can be transferred, giving up to £5 million, by a claim on form IHT437 within four years from the end of the month of the survivor’s death or, if later, six months after the personal representatives first act (IHTM25534).

How is the shared allowance allocated on death?

Where the potentially relievable value on death exceeds the available allowance, section 124D(7) attributes the allowance between the properties in proportion to the value of relevant business property within section 105(1)(a), (b) or (bb) and the agricultural value of agricultural property meeting the transferor’s interest condition. HMRC is explicit: you should not fully relieve all the agricultural property before applying what is left to business property (IHTM25121). The same proportional method applies across different titles to property in the death estate, such as the free estate, a qualifying interest in possession trust and a gift with reservation (IHTM25524).

Lifetime gifts are different. A chargeable gift uses the allowance available on its own date, so earlier gifts within seven years reduce what is left for the estate. Where several chargeable gifts are made on the same day and together exceed the allowance, section 124D(5) splits the allowance between them in proportion to their potentially relievable values.

What does a worked example look like?

Illustration only. Owen, who is unmarried and made no lifetime gifts, dies in 2027 owning a farm he farmed himself. The farmland and buildings have an agricultural value of £2.4 million and his machinery and livestock, net of business debts, are worth £600,000. His £2.5 million allowance is apportioned on total relievable value of £3 million:

  • farmland: £2.4m divided by £3m, times £2.5m, gives £2,000,000 at 100%; the other £400,000 gets 50%, leaving £200,000 chargeable;
  • machinery and stock: £0.6m divided by £3m, times £2.5m, gives £500,000 at 100%; the other £100,000 gets 50%, leaving £50,000 chargeable.

Total chargeable farm value is £250,000. Had Owen left the machinery to one child and the farmland to another, the proportional split decides how much tax is attributable to each gift, which is why executors should not simply relieve the farmland in full.

Can the tax on the excess be paid over time?

From 6 April 2026, tax on any property qualifying for agricultural or business relief can be paid by instalments, and those instalments are interest free in most cases (IHTM25580, IHTM30214). Agricultural property already qualified under section 227(2)(a), and section 227(2)(aa) now adds all relevant business property. See inheritance tax instalments for the mechanics.

What are the common mistakes?

  • Allocating the allowance to farmland first instead of pro rata across all qualifying property.
  • Claiming business relief on the residential premium of a farmhouse.
  • Claiming business relief on development value of buildings that were not actually used in the business.
  • Forgetting that gifts made since 30 October 2024 eat into the allowance.
  • Missing the IHT437 claim for a late spouse’s unused allowance.

The forms are covered in claiming agricultural relief on IHT414 and claiming business relief on IHT413. For the general conditions see agricultural property relief and business relief.

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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.