Business owners and farmers must play by strict new rules when it comes to passing on assets, after changes went live at the start of the new tax year on 6 April. But some families will be left much worse off than others under the switch.
The beneficiaries of unmarried couples, divorcees and single farmers and business owners could face paying potentially hundreds of thousands of pounds more in inheritance tax compared to if they had been married, following the implementation of the controversial changes to some IHT reliefs this month.
Sean McCann, chartered financial planner at NFU Mutual, said: “While married couples can potentially leave up to £6.3 million of qualifying agricultural and business assets free of inheritance tax, the same is not true for single farmers or divorcees who haven’t subsequently remarried who are limited to a maximum of £3.15 million.”
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What are the new APR and BPR rules?
Businesses and farms are entitled to what’s known as business property relief (BPR) and agricultural property relief (APR) – these reliefs limit the amount of inheritance tax due.
In the 2024 Autumn Budget, the government announced plans to cap the value of agricultural properties and businesses that could be passed on free of inheritance tax to £1 million – anything above that level would only get 50% tax relief.
Inheritance tax is charged at 40%, so the change would effectively introduce a 20% tax rate on the value of inherited farms or businesses over £1 million.
Following pressure from farming and business groups, the government amended the policy in December 2025, announcing it would raise the cap to £2.5 million.
It also permitted the allowance to be inherited by a spouse or civil partner – on top of existing allowances of £325,000 IHT-free per person, plus the nil rate residential allowance of £175,000 per person – boosting the amount that could be passed on IHT-free to £5.65 million.
But certain groups are set to miss out on the more relaxed rules, leaving their families with much bigger inheritance tax bills.
Hardest hit by new inheritance tax rules
Married couples and civil partners have significant advantages when it comes to inheritance tax planning. Anything left to the surviving partners after the first death is normally free of IHT.
The survivor can also benefit from any unused part of their late spouse’s £2.5 million inheritance tax-free APR and BPR allowance as well as the £325,000 inheritance tax-free allowance.
Unmarried couples do not benefit from the spousal exemption, meaning that leaving assets to a surviving partner could trigger a bigger IHT bill. In this case, while the deceased’s £2.5 million APR and BPR allowance and £325,000 tax-free allowance would cut the amount of IHT payable, only the survivor’s allowances would be available on the second death when passing assets to the younger generation – not the combined allowances as would be the case of a married couple.
Divorcees also miss out – while widows and widowers can benefit from their late spouse’s unused £2.5 million 100% APR/BPR allowance, regardless of whether they owned agricultural or business assets, the same is not true of divorcees who have not remarried. Beneficiaries of divorcees can only benefit from the person who has died’s allowances.
Bigger inheritance tax bill
McCann from NFU Mutual has highlighted one example which shows the significant difference in the IHT bill depending on whether the deceased is a widower or a divorcee.
Take Steve, who owns a farm and business assets worth £6.5 million. He has:
300 acres worth £3.5 millionmachinery and stock worth £1 millionfarmhouse and buildings worth £2 million
The table shows the difference in how Steve would be treated for inheritance tax purposes depending on whether he is a widow or a divorcee.
Swipe to scroll horizontally
Widower
Divorcee
His own and his late wife’s £2.5 million 100% APR / BPR allowance = £5 million tax free
His own £2.5 million APR / BPR allowance = £2.5 million tax free
£1.5 million x 50% relief = £750,000 taxable
Less his own and his late wife’s £325,000 tax free allowances (£650,000)
£4 million x 50% relief = £2 million taxable
Less his own £325,000 tax free allowance
£100,000 x 40% = £40,000 IHT bill
£1,675,000 x 40% = £670,000 IHT bill
Ways to avoid inheritance tax
There are some strategies those affected by the changes to agricultural property relief and business property relief can use to help avoid inheritance tax or reduce their inheritance tax bill.
Couples who are not married face additional complexities as they don’t benefit from the tax-free exemption available to spouses. This means leaving assets to a common law partner could trigger an inheritance tax liability, followed by a second charge on their subsequent death.
“Unmarried couples who want to maximise the amount passed on to younger generations could consider using the £2.5 million 100% APR and BPR allowance and £325,000 tax-free allowance to leave assets to the younger generation on first death, leaving the survivor free to do the same,” said McCann.
For those unmarried couples who don’t wish to get married, it’s important to take advice on the advantages and disadvantages of this approach before taking any action, he said.
McCann added: ‘’Before the inheritance tax proposals were announced, the approach of many farmers was to gradually hand over more of the day-to-day management to the younger generation while holding onto the ownership of the assets until a later date.
“The new rules will prompt many to pass on the assets at an earlier stage, because if they live seven years [after giving the gift], they would normally be free of inheritance tax.
‘’For that to work it’s important that the farmer doesn’t continue to benefit from the assets they give away. If they intend to continue in the business, they’ll need to pay a market rent to the new owner or if in partnership with them, reduce their profit share to reflect the new ownership.’’
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