How to Apportion Agricultural and Business Relief

When a person dies owning property that qualifies for Agricultural Relief or Business Relief, working out how much Inheritance Tax relief applies can be complex—especially with the new rules taking effect from 6 April 2026. From that date, there's a £2.5 million cap on relief at the 100% rate, with a reduced 50% rate applying above that threshold. This article explains how to apportion these reliefs correctly across lifetime gifts and assets in the estate.

The new relief limits from April 2026

For deaths on or after 6 April 2026, qualifying agricultural or business property receives 100% relief up to a maximum of £2.5 million. Once this allowance is used up, the rate of relief reduces to 50%.

The £2.5 million allowance covers:

• Qualifying property in the estate at death
• Gifts of qualifying property made on or after 30 October 2024 (where the person dies within 7 years of making the gift)

If you inherited any unused allowance from a predeceased spouse or civil partner, your total allowance could reach £5 million.

Property that qualifies for 100% relief

Property eligible for the 100% rate (up to the £2.5 million threshold) includes:

• Agricultural property – farmland, farm buildings, and farmhouses
• Business property – trading businesses and unquoted business shares

Some property only qualifies for 50% relief regardless of value. This includes shares traded on markets that don't meet HMRC's definition of 'listed', such as those on the Alternative Investment Market (AIM).

How the allowance is applied

The £2.5 million allowance must be allocated in a specific order:

Step 1: Lifetime gifts first

Gifts of qualifying property made from 30 October 2024 onwards use the 100% relief allowance first. These are applied chronologically, starting with the oldest gift and working forward to the newest.

Step 2: Assets at death

After accounting for lifetime gifts, any remaining allowance is shared proportionally across all assets in the estate that qualify for 100% Agricultural Relief or Business Relief. You cannot choose to apply the entire remaining allowance to just one asset—it must be divided in proportion to the values of all qualifying assets.

Step 3: Relief above the cap

Once the £2.5 million allowance is fully used, any further qualifying property receives 50% relief.

When property qualifies for both reliefs

Some assets might technically qualify for both Agricultural Relief and Business Relief. In these situations, Agricultural Relief takes priority and is applied instead of Business Relief.

Preparing to calculate the apportionment

Before working out how the allowance applies, you must first deduct any Inheritance Tax exemptions for:

• Spouses or civil partners
• Gifts to charities

For each lifetime gift of qualifying property made from 30 October 2024 onwards, gather the following information:

• Date of the gift
• Value qualifying for Agricultural Relief
• Value qualifying for Business Relief
• Name of the recipient (whether an individual or trust)

For assets held at death, you need:

• The asset type (for example, farmland or business shares)
• The value qualifying for Agricultural Relief
• The value qualifying for Business Relief
• The name of the owner (the estate, joint owners, or a trust)
• Details of any gift with reservation
• Confirmation of any assets that only qualify for 50% relief

Using HMRC's apportionment tool

HMRC provides an online tool to help calculate how the £2.5 million allowance should be divided. The tool is designed for estates with up to 8 agricultural assets and 8 business assets. Larger or more complex estates will need professional advice.

You don't need to use the tool if the total value of gifts and assets falls below your available allowance (£2.5 million, or up to £5 million with transferred allowance from a spouse or civil partner).

What the tool does:

• Calculates how much of the £2.5 million allowance has been used by lifetime gifts
• Shares the remaining allowance proportionally across assets in the estate
• Provides a breakdown showing how much of each asset receives 100% relief and how much receives 50% relief
• Directs you to the correct Inheritance Tax forms to submit to HMRC

What the tool does not do:

• Calculate the total Inheritance Tax bill
• Submit information to HMRC on your behalf
• Apply other Inheritance Tax exemptions
• Determine whether a specific asset qualifies for Agricultural Relief or Business Relief
• Assess whether the estate is an excepted estate

The tool does not save your answers. If you close it before finishing, you'll need to start again from the beginning.

After completing the calculation

Once you've worked out the apportionment using the tool, enter the 100% and 50% relief amounts into the relevant Inheritance Tax forms for submission to HMRC.

Be aware that if any values change after you complete the calculation—including after you've reported the estate's value—you'll need to recalculate the apportionment of relief. The calculation is specific to the values you enter, so any subsequent changes affect how the allowance is divided.

Practical considerations

The proportional sharing requirement means you cannot strategically allocate all remaining allowance to the most valuable asset or the one passing to a particular beneficiary. The relief must be spread across all qualifying assets according to their values.

This can have significant implications for estates where different assets pass to different beneficiaries, as the Inheritance Tax liability may not align with how you intended assets to be distributed. Professional advice becomes particularly important in these situations to understand the tax consequences for each beneficiary.

Sources

• Work out how to apportion Agricultural and Business Relief for Inheritance Tax

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.