Despite the pressure applied on the government by farmers to reassess the changes to business property relief (BPR) and agricultural property relief (APR) that were announced in the October budget, there was no U-turn in the Spring statement on the restrictions being placed on these reliefs.
Currently there is 100% relief available from Inheritance Tax (IHT) for assets that qualify for BPR and/or APR meaning that many businesses have been protected from a charge to IHT.
With effect from 6 April 2026 the 100% relief will only apply to the first £1 million of assets that qualify. Where assets are valued at more than £1 million, the excess will qualify for 50% relief. This gives an effective rate of IHT of 20%.
Where assets qualify for both BPR and APR the £1 million is a total across the assets, not £1 million for BPR assets and £1 million for APR assets.
In addition to this, the £1 million relief is not transferrable between spouses or civil partners, where it is not used on first death. This is unlike the rules that currently apply for the nil rate band and residential nil rate band, that can give rise to relief from IHT on £1 million, where all the conditions are met.
These changes may present new challenges when thinking about succession for your business and the strategies that you need to be thinking about to mitigate the impact.
I am aware of clients who are already considering transferring their business to the next generation to avoid these penal IHT charges.
The changes not only affect individuals but also trusts, for example where shares held in a trading company have been placed into trust previously to provide asset protection for future generations. The way the new rules applies to trusts is currently under consultation, but this does not mean that there will be any changes once the consultation period has ended on 23 April 2025. We may however have a better idea of how the changes affect trusts.
Anyone affected by these changes should be reviewing the impact it will have, even if a conscious decision is made to do nothing, which may be the right answer. When making decisions, other taxes should also be considered for example capital gains tax, as although the decision may give a favourable result for IHT it could worsen the capital gains tax position.
The old saying “don’t let the tax tail wag the dog” may be relevant where asset protection is an important factor.
You will have seen the farmer’s protests on the news that were happening in London. Never did I expect to be sat at my desk in Swindon and see a procession of tractors pass by.