UK Budget: inheritance tax reform may free up land for renewable energy projects

Renewable energy expert Gareth Phillips was commenting after the chancellor announced significant reforms to agricultural property relief (APR) and business property relief (BPR). These changes aim to balance the need for increased government revenue with the protection of small family farms and businesses. 

Starting from April 2026, the first £1 million of combined business and agricultural assets will continue to attract no inheritance tax. However, for assets exceeding this threshold, the relief will reduce from 100% to 50%, resulting in an effective tax rate of 20%.

Phillips said: “Historically, farmers have been reluctant to grant leases for renewable development because the land is deemed to transfer out of agricultural holding, and as such will lose out on inheritance tax relief. However, following the changes announced in Wednesday’s budget, landowners will now be much more incentivised to look at leasing land to renewable developers as a way of finding new income streams to top up the loss. It may also trigger more sales of farm land by those who need to fund the payment of inheritance tax, meaning more land becomes available for different uses.”

Read more of our UK Budget coverage

• UK Budget: national minimum wage sees biggest boost on record
• UK Budget: carbon border adjustment mechanism set for 2027 start date
• UK Budget: tech barriers review to inform industrial strategy
• UK Budget: new rules to combat umbrella company tax avoidance ‘should prompt due diligence’
• UK Budget: no change for corporate taxes but employers’ NICs increased to 15%
• UK Budget: role for private finance in infrastructure delivery remains unclear
• UK Budget: carried interest tax rate increased to 32% with further increases expected from 2026
• UK Budget: CCUS and tax relief measures may soften oil and gas energy profits levy blow

Additionally, from April 2025, the scope of APR will be extended to include land managed under environmental agreements with the UK government, devolved governments, public bodies, local authorities, or relevant approved responsible bodies. This extension aims to support sustainable farming practices and environmental stewardship.

These reforms are designed to ensure that small family farms and businesses remain protected. The government estimates that these changes will impact around 25% of estates, representing around 2,000 estates each year from 2026-27, with approximately 500 of these claiming APR.

“The government say that almost three-quarters of estates claiming agricultural property relief will remain unaffected,” Jake Landman, tax law expert at Pinsent Masons, said.  “So, it will perhaps depend on whether the remaining quarter are the ones suitable for energy projects.”

The changes are part of a broader strategy to raise £40 billion for the government while aiming to ensure the sustainability of public finances.