INHERITANCE TAX – CHANGES TO AGRICULTURAL PROPERTY RELIEF AND BUSINESS PROPERTY RELIEF

The UK government pledged to make considerable changes to inheritance tax (IHT), particularly agricultural property relief (APR) and business property relief (BPR), in its 2024 Autumn Budget. Over a year and another Budget since, the details of these changes are close to being finalised in anticipation of 6 April 2026, after which they will come into full effect.

From 6 April 2026, the extent to which agricultural and business assets may qualify for 100% relief is to be capped. Originally, the cap was set at £1 million. However, following a government announcement on 23 December last year, this is to be increased to £2.5 million. Where qualifying assets exceed the £2.5 million threshold, relief on that excess value will be restricted to 50%.

For example, an individual’s shareholding in a family business valued at £3.5 million would notionally qualify for 100% relief to the extent of £2.5 million. The excess £1 million of value would qualify for 50% relief, leaving £500,000 of value subject to IHT at 40% (£200,000). This is before consideration of any other reliefs, exemptions and ‘nil rate band(s)’. 

Every individual will have their own £2.5 million ‘allowance’ to utilise against qualifying agricultural and business assets. Following the original policy announcement, one of the consistently raised criticisms was that an unused ‘allowance’ would not be transferable between spouses and civil partners. Despite initial resistance, as part of the 2025 Autumn Budget the government backtracked and confirmed that an individual’s unused ‘allowance’ will be transferable. In summary, this means a couple will have a combined ‘allowance’ of up to £5 million to utilise following the second death.

Separate from the £2.5 million ‘allowance’ available to individuals, the government has confirmed that trusts will have their own £2.5 million ‘allowance’ to apply where relevant trust assets are subject to IHT. Multiple trusts settled by the same individual on or after 30 October 2024, will share a proportion of the £2.5 million allowance amongst them; however, trusts in existence prior to 30 October 2024 are deemed to have an allowance each. 

There are a series of transitional rules which, depending on the circumstances, may present planning opportunities in anticipation of the new rules coming into full effect on 6 April. In the meantime, it is not anticipated that there will be further significant changes prior to the reforms becoming finalised. 

If you would like to discuss any of these aspects further, please get in touch with your Turcan Connell contact or email enquiries@turcanconnell.com.