The 2026 Inheritance Tax Changes for Farmland With Development Potential

The change is law, not a proposal. Section 65 of the Finance Act 2026, which received Royal Assent on 18 March 2026, introduces Schedule 12, headed reform of reliefs for business property and agricultural property. The schedule rewrites the relief sections of the Inheritance Tax Act 1984, the statute behind inheritance tax, and its commencement paragraph applies the new rules to transfers of value made, and occasions of charge arising, on or after 6 April 2026.

The figure moved before the law was made. When the reform was first announced, at the Autumn Budget 2024, the allowance was £1 million. HMRC's policy paper on the changes notes the announcement of 23 December 2025 that raised it to £2.5 million. The paper's own estimate is that up to 1,100 estates across the UK could pay more inheritance tax in 2026 to 2027 because of the reform, up to 185 of them estates claiming agricultural property relief. Most families with a few fields will find their farmland sits well inside the allowance. The rest of this guide is about the part of a field's value that the allowance does not touch.

The allowance is set by a new section 124D of the 1984 Act, inserted by the Finance Act 2026. Its proper name is the 100% relief allowance, and the section fixes it at £2.5 million less any part already used. Six points in the legislation shape how it works for a farming family.

• It is shared between the two reliefs. The same £2.5 million covers both agricultural property relief and business property relief. A family with a farm, a trading business and some let land draws on one figure, not two.
• Gifts in the previous seven years come off first. Section 124D reduces the allowance by the 100% relief given on chargeable transfers made by the same person in the seven years before. A lifetime gift of farmland that becomes chargeable because the giver dies within seven years therefore uses up part of the allowance before the estate is reached.
• On a death it is spread across everything that qualifies. Where the qualifying value is more than the allowance, section 124D says the allowance is attributed between the properties in proportion to the value of each. The executors cannot choose to set the whole allowance against one field.
• It passes to a surviving spouse or civil partner. Schedule 12 also inserts section 124E, which lets the survivor increase their own allowance by the percentage of the first allowance that was not used. HMRC's paper adds that where the first death was before 6 April 2026, the full £2.5 million is treated as available to transfer.
• Trusts have their own. Trustees holding farm or business property get a separate £2.5 million figure for it, and the policy paper expects them to keep records of how it is used. The trust rules are covered further down this guide.
• It can rise with prices, later. A new section 124L, inserted by the same schedule, comes into force on 6 April 2030. It links the allowance to the Consumer Prices Index for each September, rounded up to the next £1,000, but says no increase is to be made before 6 April 2031.

HMRC's paper shows the scale for a couple. Put the transferable allowance together with both nil-rate bands and, on the paper's figures, two people can leave as much as £5.65 million between them without inheritance tax. That figure only counts property that qualifies for one of the reliefs, which is where land with development potential needs a closer look.

Section 115(3) of the 1984 Act fixes agricultural value by imagining a perpetual covenant on the land that forbids any use except agriculture, and asking what the property would then be worth. Put simply, it is what a buyer would pay for a field that could never become anything but farmland. Section 116 then gives relief on the part of the value transferred that is attributable to that agricultural value, and nothing more.

Land on the edge of a village is often worth more than that on the open market. Valuers call the extra hope value: the premium a buyer pays today for the chance that planning permission may be granted one day, before any permission exists. Once permission is granted, the extra is usually called development value. HMRC's inheritance tax manual explains that the open market value of agricultural property may exceed its agricultural value, giving planning permission, development or amenity value and minerals as reasons, and that agricultural relief does not cover the excess.

The manual also sets out the order. Agricultural relief is given first, and the same part of a transfer cannot be reduced by both reliefs. Business relief is then considered for whatever is left, which on a field near a village is usually the hope value.

Inheritance tax is charged on open market value, so whatever a buyer would have paid on the day for the chance of permission is included. The valuation of an estate holding land like this therefore needs the agricultural value and the open market value reported separately. How that valuation is made and tested by HMRC is the subject of our guide to valuing land for probate, and what the family can then do with the land is covered in our guide to inheriting farmland.

Business property relief exists for business assets, not investments. HMRC's manual sets out how it applies to the value above agricultural value according to how the land was held and used. The table follows the manual's own cases.

Many fields with development potential fall into the fourth row or close to it. They are let on a farm business tenancy, grazed under a licence by a neighbour, or no longer farmed at all. For land of that kind, the agricultural value can be fully relieved within the allowance while the hope value above it receives no relief at all. Why letting takes land out of business relief, and the court case HMRC relies on for grazing land, is set out in our guide to retiring from farming.

Each example assumes one owner who dies after 6 April 2026, with no spouse or civil partner and no lifetime gifts in the previous seven years, and with the nil-rate band used by other assets in the estate. GOV.UK's inheritance tax page gives the standard rate as 40%, and that is the rate used throughout.

Set side by side, the examples show where the 2026 changes bite and where they do not. On a modest holding the allowance rarely runs out, and the deciding question is the older one: whether the value above agricultural value is a business asset. On a larger farm in hand, the allowance and the 50% rate decide the bill. A field that is both let and on the edge of a village can carry a tax charge even when the estate is nowhere near £2.5 million.

The rule for agricultural relief is in section 124 of the 1984 Act: the relief does not apply to agricultural property if, at the time of the transfer, the owner has entered into a binding contract for its sale, apart from a narrow exception for a sale to a company in return for shares that give the seller control of it. Section 113 says the same for business relief: property under a binding contract for its sale is not relevant business property. HMRC's manual puts the agricultural rule plainly: where agricultural property is transferred at a time when it is subject to a binding contract for sale, agricultural relief is not due. The whole of the land's value loses its relief, the agricultural value as well as anything above it.

The agreements used for development land differ on exactly this point.

The partnership point in the second row comes from HMRC's manual on agreements between business owners. Where a deceased partner's share falls into the estate with an option for the surviving partners to purchase it, the manual says the arrangement is not a contract for sale and does not stop business relief. It keeps that result for a "buy and sell" agreement, under which the personal representatives must sell and the survivors must buy, and says such terms are rarely met. That is the line HMRC draws between a right to buy and an obligation binding both sides, though it was written about partnership shares, not development land.

Our guide to option agreements explains how an option is signed, protected on the title and exercised. Where the tax effect of a particular agreement is concerned, the terms of that agreement, and the date it is exercised, are what count.

Section 227 of the 1984 Act allows tax on land of any description to be paid by ten equal yearly instalments, and the Finance Act 2026 extended the same option to all property that is relevant business property. On a death, the first instalment is due six months after the end of the month in which the death occurred. GOV.UK's page on paying inheritance tax by yearly instalments adds that for assets inherited from 6 April 2026 the instalments are interest-free where the asset qualifies for agricultural relief or business relief, although interest is charged on any instalment paid late.

• The instalments end on a sale. Section 227(4) provides that if the land is sold, the tax not yet paid on it becomes payable immediately, or a proportionate part of it if only part is sold. GOV.UK puts it simply: you must pay the tax in full when you have sold the assets.
• Relief on the land does not follow the money. Once land is sold, the estate or the family holds cash, which qualifies for neither relief. Our guide to tax when selling land for development weighs that against the capital gains tax due on a sale.
• Interest on the slice without relief. Schedule 12 rewrote section 234 of the 1984 Act so that the interest-free treatment covers tax on value that one of the reliefs has reduced. Tax on a slice that no relief reaches, such as the hope value of let land, can still be spread over ten years, but GOV.UK explains that instalments outside the interest-free rule carry interest on the whole balance still owed.
• Buying replacement farmland is not a clean restart. Section 118 lets the ownership and occupation of farmland that replaced other farmland be added together for the qualifying periods, but caps the relief at what it would have been had the replacement not been made.

Two smaller rules in section 227 catch families out. The instalment option is not automatic: the person paying the tax chooses it by notice in writing to HMRC. And where land was given away and the giver dies within seven years, the person who received it can pay the tax then due by instalments only if they have kept the land from the date of the gift until the death, or replaced it with property that keeps the relief. A child who has sold gifted land without replacing it pays that tax in one sum.

A Husband, Wife or Civil Partner

Where the first of a couple to die leaves the farm to the other, little or none of the allowance may be used on that death. Section 124E then lets the unused part be claimed on the survivor's death. The claim works by percentage: if half of the first allowance was unused, the survivor's allowance rises by half. This makes the order and shape of a couple's wills, and which of them owns which field, worth looking at with the 2026 rules in mind.

Gifts of Land in the Seven Years Before Death

A gift of land to a child falls out of the estate only if the giver lives for seven years, and gifts made after 29 October 2024 by someone who dies on or after 6 April 2026 are judged by the new rules; the conditions and the traps are in our guide to gifting land to children.

Land Held in Trust

Most trusts holding land are taxed under a separate regime, with periodic charges at each tenth anniversary of the trust and exit charges when property leaves it. HMRC's policy paper gives trusts their own £2.5 million allowance for the farm and business property they hold, and for trusts that existed before 30 October 2024 the new rules take effect from the first tenth anniversary falling on or after 6 April 2026. The paper also standardises the way the rate of an exit charge is found: every exit charge, before or after the first tenth anniversary, is to be calculated on unrelieved values, meaning values before agricultural or business relief. Trustees of a trust that holds land with potential will want their adviser to work out the next anniversary charge under the new rules, because the hope value in that land may carry no relief at all.

1. The price is agreed at the start. It is written into the agreement as a figure, set above what the land is worth today in its current use, and is not reduced if the costs of the planning work rise.
2. We pay for and run all the planning work, at our own cost and risk. If planning permission is not achieved, you keep your land and owe nothing.
3. You keep owning and using the land until completion. Any farming, letting or grazing carries on as before, and our agreement continues while any planning application or appeal is being decided.
4. Your own solicitor and land agent act for you. We contribute to their fees, so it costs you nothing to get it done properly. Many landowners also speak to their accountant at this stage, because the timing of a sale can affect capital gains tax and inheritance tax planning.
5. We keep you informed at every stage, so you and your accountant can plan ahead.
6. Completion. Once planning permission has been secured, we complete the purchase and the agreed price is paid to you on completion, with the milestones set out in the agreement.

The agreement also binds your estate. If anything happens to you while the planning work is under way, your executors take over your position and the agreed price is paid to your estate on completion, so your family is not left to start again.

If you would like to know first whether your land has a realistic case for development at all, a free desktop review of your land answers that without committing you or your family to anything.

• Who owns each field: one person, a couple, a partnership, a company or a trust, and in what shares.
• How each field has been used for the last two years and the last seven: farmed in hand, contract farmed, let on a farm business tenancy, grazed under a licence or left idle.
• Whether the last valuation of the land, for probate or a will review, shows its agricultural value and its open market value as two separate figures.
• The total of all the farm and business property in the estate, to see how it sits against the £2.5 million allowance.
• Whether a husband, wife or civil partner has died, and when, and how much of their allowance was used.
• Any gifts of land or business assets made since 30 October 2024, with their dates and values.
• Whether any field is already under an option, a conditional contract or any other agreement, and whether that agreement has been exercised.
• The tenth anniversary date of any trust that holds land.
• How the family would meet the tax: from other assets, from income over ten yearly instalments, or from a sale.