Agricultural and Business Property Relief
A number of significant changes were made to inheritance tax reliefs on rural property.
- 100% relief from IHT for farms and estates through either Business Property Relief (BPR) or Agricultural Property Relief (APR) has been removed.
- It has been replaced with a £1,000,000 allowance for any property that qualifies for APR or BPR. This allowance is a combined total (i.e. it will not be possible to claim £1,000,000 of relief against an APR qualifying asset and another £1,000,000 against another BPR asset). Beyond that, any land or property, qualifying for APR or BPR will receive a 50% deduction on the full rate of IHT due on its value which is therefore equivalent to 20% of the value of that asset.
- The changes to APR and BPR are due to take effect from 6 April 2026. However, for lifetime transfers and gifts made after 30 October 2024, should the transferor pass away after 6 April 2026, the new 50% relief shall apply on qualifying property.
- Whilst we await more detail, we understand that the tax-free personal allowance of £325,000 will be applicable in addition to this. This can increase to £500,000 for the deceased’s main residence (provided their total Estate is worth less than £2,000,000) and can be combined between spouses. Therefore, this means that, potentially, a further £1,000,000 of the farmhouse could also be shielded from IHT.
- Certain trusts will also benefit from the £1,000,000 allowance for qualifying property. If multiple trusts were set up prior to 30 October 2024, it may be possible to receive the full £1,000,000 allowance on each trust. If set up after 30 October 2024, the government intends to bring in rules to combine this allowance across multiple trusts set up by the settlor (i.e. £1,000,000 allowance available in total across the trusts).
- It would appear that potentially Exempt Transfers (PETs) remain available where assets are gifted and provided the person making the gift survives seven years the asset is considered outside of their Estate and not subject to IHT.
- The re-basing of property values upon death appears to have remained in place for capital gains tax purposes.
- There are many other considerations to get to grips with including how machinery, livestock and other farm capital items should be dealt with for IHT.
Jeremy Moody of the CAAV gave the following example in the CAAV Podcast (#70 – Unpicking the Budget – The CAAV Podcast | Podcast on Spotify) of what these changes might mean for a fairly typical family farm of 200–300 acre farm with house, cottage, livestock, machinery and a total value of circa £4m. A similar farm would now be liable to a potential IHT bill of £600,000, depending on a number of factors. This hopefully demonstrates it is not just the wealthy landowners that will be caught by the change, and it will create a significant liability to farming businesses going forwards.
The above changes represent a significant change to the taxation of farms and estates in the UK and means succession planning will need to be reconsidered carefully in light of this.
Conclusion
Clearly, these changes will have a substantial impact on our clients and therefore, should you wish to speak to any of the BCM Wilson Hill team to discuss your options, please do contact us.
CONTACT
Isle of Wight: James Attrill 01983 828 801 jattrill@bcmwilsonhill.co.uk
Winchester: Alastair Wilson 01962 763 916 awilson@bcmwilsonhill.co.uk
This is not tax advice and BCM Wilson Hill are not tax advisors and therefore we recommend you speak to your specialist tax advisor for more information specifically tax related.