The news that the Government planned to tighten up the rules around Agricultural Property Relief (APR) and Business Property Relief (BPR) was met with dismay when it was announced in last year’s Autumn Budget. The plans would mean only up to £1 million of qualifying agricultural or business assets could be passed on at the full 100% relief rate. Anything over that would face tax or reduced relief.
Draft legislation has now been published about the proposed restrictions to these two significant Inheritance Tax reliefs. Despite significant pressure, particularly from farmers, the proposals have not really changed from the original announcements. Here’s an overview of what’s being planned:
- The new rules will apply to deaths happening on or after 6 April 2026. Gifts from 30 October 2024 may also be affected.
- Property which already qualifies for 50% APR or BPR will be unaffected.
- From April 2026, estates with assets which qualify for APR or BPR and which exceed £1 million (that currently benefit from 100% relief) will instead receive only 50% relief. This change effectively imposes a 20% tax on assets that were previously exempt; a substantial shift. Although lower than the full 40% IHT rate, it could still mean a significant tax bill.
- After 6 April 2026, heirs will potentially face IHT on 50% of the value of AIM shares, which were previously fully exempt under BPR.
The Government has stated that it believes only a small number of beneficiaries will be affected, estimating that just 2,000 estates will pay more IHT in 2026-27. Campaigning bodies including the Country Land and Business Association have challenged this saying many thousands of farmers will be affected. Non-farming businesses are expected to be hit even harder.
Planning for the changes
To prepare for the changes there are a few proactive steps which can help manage exposure and protect generational wealth. Here’s a list of things to consider:
- Value your business – all partnership shares will need to be properly valued by a suitably qualified professional. This will ensure you properly understand the value of your assets, and can plan accordingly.
- Review the legal and ownership structure – restructuring could improve the tax position of your business
- Consider any trust arrangements – the £1m allowance will, like the Nil Rate Band reset every seven years but using trusts can ‘use up’ the reliefs. As a result any subsequent trusts will not be able to get more than 50% relief on qualifying APR/BPR trusts.
- Check your Will – the new allowance will not be transferable between spouses. You may need to re-write any existing Wills and consider transferring assets to make the most of the new allowance.
To discuss any aspect of your business planning, including tax exposure, please get in touch with our friendly team.