Update on Restrictions to Agricultural Property Relief and Business Property Relief

When delivering last year’s Autumn Budget Statement, the UK government announced that the Inheritance Tax (“IHT”) reliefs applicable to agricultural property and business property would be restricted with effect from 6 April 2026. A policy paper outlining the changes at a high level was published alongside the Budget Statement, advising that more details would be provided in early 2025.

By way of reminder, the headline change is that a new £1m allowance will apply to the combined value of property qualifying for agricultural property relief (“APR”) and/or business property relief (“BPR”) at 100% (“qualifying assets”). After the £1m allowance has been exhausted, relief will be limited to 50% on the balance of the qualifying assets. 

On 27 February, the UK government published an open consultation providing more detail on the application of the proposed restrictions. The key points to note from the consultation are as follows:

Individuals

With effect from 6 April 2026, every individual will have a £1m allowance to apply against qualifying assets (a) held at death and (b) gifted to individuals or transferred to a trust within the seven years prior to death.

The £1m allowance will refresh every seven years (in the same way as the nil rate band). Importantly, it will not be transferable between spouses and civil partners.

Lifetime transfers made prior to Budget Day (30 October 2024) will not be affected by the new rules. Lifetime transfers made within the transitional period (30 October 2024 to 5 April 2026) will be subject to the new rules where the donor dies on or after 6 April 2026.

Relevant Property Trusts

With effect from 6 April 2026, trustees of a relevant property trust holding qualifying assets will be entitled to their own, separate, £1m allowance for calculating the IHT due on any exit charges and 10-year anniversary charges. The consultation sets out how the £1m allowance will be allocated.

Transitional rules will apply to (a) qualifying assets that were transferred into trust before 30 October 2024 and (b) qualifying assets settled on or after 30 October 2024 and before 6 April 2026. Broadly, the £1m allowance will apply to 10-year charges after 6 April 2026; however, there will be some relief available to qualifying assets that were settled prior to 6 April 2026. There may also be scope for qualifying assets to come out of trust without charge before the new rules come into effect.

Anti-fragmentation

To avoid individuals settling multiple trusts in advance of the new rules coming into effect (and the trusts benefiting from multiple £1m allowances), anti-fragmentation rules will apply to allocate a single £1m allowance amongst multiple trusts settled by the same individual on or after 30 October 2024. Trusts that were settled before 30 October 2024 will each benefit from their own £1m allowance.

Interest-free Instalments

The consultation confirms that IHT due on qualifying assets can be paid in ten equal annual instalments without interest.

Looking forward

While the additional detail included in the consultation is helpful, the proposals remain subject to change until they become law. The UK government has advised that they will carry out a further technical consultation on draft legislation for the changes later this year.

Please contact your usual Turcan Connell contact if there is anything that you would like to discuss at this stage.