How changes to Inheritance Tax reliefs could impact you
October saw one of the most anticipated Budgets that many of our clients have faced in recent years, with much speculation on the future of Inheritance Tax (IHT).
And, as expected, Chancellor Rachel Reeves did indeed announce changes to both Business Property Relief (BPR) and Agricultural Property Relief (APR).
What’s changed?
Currently, certain assets that qualify for APR can get IHT relief at 100% of their agricultural value, while certain assets that qualify for BPR can get IHT relief at 100% of their market value. This has long been a significant and valued relief by our clients, including non-agricultural business clients.
However, BPR and APR are set to change from 6 April 2026, with the existing 100% rate of relief available on only the first £1 million of combined qualifying business and agricultural property. After this, the rate of relief will reduce to 50%, resulting in an effective 20% IHT charge.
This effective IHT rate of 20% will also extend to shares in companies on the Alternative Investment Market (AIM), which were previously exempt from IHT if held for at least two years. However, AIM shares will not come within the new £1 million allowance.
The standard rate of IHT remains at 40%. The IHT nil-rate bands were already frozen at current levels until 2028; this has now been extended for a further two years until April 2030.
Who may be impacted?
We anticipate that these changes will particularly affect owners of UK trading businesses and agricultural land, particularly family-run businesses whose owners intend to pass on to the next generation. Farming families have reacted with anger to the change, with thousands of farmers (including television personality turned farmer Jeremy Clarkson) marching in protest against the changes in November 2024.
The changes represent a significant shift for these businesses, estates and trusts, which may now have to plan for IHT liabilities on business and agricultural property, including how to fund the tax.
Broadly, we understand that the above changes will apply in three distinct scenarios:
- On the death of an owner of business and/or agricultural property.
- On the death of a donor of qualifying property within seven years of making an outright gift.
- On the gift into trust of qualifying property during the lifetime of the donor/settlor (the government is due to publish a consultation in early 2025 focusing on trusts).
Looking ahead – and how can we assist
Any of the £1 million allowance that is not used will not be transferable to the surviving spouse or civil partner, thereby presenting an opportunity for careful estate and Will planning to maximise relief.
There have been no announcements about changes to other exemptions and reliefs from IHT, such as spousal relief or the seven-year gifting regime (i.e., Potentially Exempt Transfers or PETs). As such, these rules will remain in force, possibly presenting opportunities for owners of farming or other businesses to pass down assets to the next generation or into trust. Of course, each case will depend on the individual circumstances, meaning it’s vital to seek professional tax and succession advice before taking action.
Do bear in mind that, whilst these changes have been announced, they are not yet law; there could be some differences when the final legislation is published, particularly given initial feedback from the farming community. We will continue to monitor the situation and provide updates over the coming months.
At Attwaters Jameson Hill, our expert lawyers are on hand to guide you through these changes and help you find solutions that protect your wealth. From estate planning and Wills to specialist trust advice, we can provide advice that spans your every legal need. To discuss your personal circumstances with a lawyer, please feel free to contact us on 0330 221 8855 or email enquiries@attwaters.co.uk
