A new inheritance tax regime for UK farms and family businesses comes into force on Monday and will present “significant challenges” for those affected, according to accountants.

In October 2024 the government announced plans to levy inheritance tax on farms – prompting an outcry in many quarters.

After months of pressure from campaigners and MPs representing rural areas, ministers announced just before Christmas 2025 that they would increase the threshold for taxing inherited farmland from the original £1m to £2.5m.

The original announcement triggered protests around the UK, with farmers arguing it would prevent many of them from passing on their farms to their children, and while the threshold change was welcomed by many in the sector, the tax changes remain controversial.

From now on, the first £2.5m of combined agricultural and business property will continue to receive 100% relief from inheritance tax, with 50% relief on amounts over £2.5m. Each person will have a £2.5m allowance.

Elsa Littlewood, a private client partner at accountancy and business advisory firm BDO, said the start of the new inheritance tax regime was “a watershed moment for the farming and family business community”.

She added: “While there have been some important and welcome concessions made since these new rules were initially announced, the new policy is nevertheless a significant departure from the previous regime and will pose significant challenges for those businesses in scope.”

Many would need to devote much more time and attention to their succession planning earlier in their lives to ensure their business could be transferred in the most efficient manner and in a way that gave it the best chance of surviving and thriving over the longer term, she said.

“The new regime will be particularly challenging for farm businesses which may be asset-rich but cash-poor,” said Littlewood.

“In certain circumstances it may result in beneficiaries having to sell off land or assets to pay IHT [inheritance tax] liabilities.”

The government previously said it had listened to the concerns raised and that raising the threshold would significantly cut the number of farms and business owners facing higher inheritance tax bills, ensuring that only the largest estates were affected.