Upcoming Changes To Agricultural Property Relief And Business Property Relief

Reasons to choose Wilson Browne

Currently, an unlimited value of assets can be inherited by your family, free of inheritance tax if they qualify for agricultural property relief (APR) and/or business property relief (BPR). However, from 6^th April 2026, APR and BPR assets valued over £1 million will be subject to inheritance tax. The changes suggest that 50% of the value of qualifying assets over £1 million will be subject to inheritance tax; which is currently charged at 40% of the value. Unlike the Nil Rate Band and Residence Band Allowances, there will be no transferable allowances between spouses and civil partners for APR or BPR assets.

This may have some worrying implications on your farming business, therefore there are some important steps which can be implemented now, ahead of the deadline, to help minimise the potential losses.

What can I do to reduce Inheritance Tax in my Estate?

Before these changes come into effect, it is prudent that you examine your personal affairs, by reviewing your existing Will, trust arrangements and business and insurance agreements as well as seeking tax planning advice, to ensure that you are limiting your exposure to tax.

It is advisable to carry out the following actions within plenty of time, prior to 6^th April 2026.

Reviewing your Will (or make a Will if you have not already got one)

Make sure that you are maximising all the tax reliefs available to you such as the Nil Rate Band, the Transferable Nil Rate Band, the Residence Nil Rate band and the Transferable Residence Nil Rate Band. Consider gifting to charity to take advantage of a lower tax rate and the use of trusts within your Will.

A change in your Will may save you thousands in Inheritance Tax.

Gifting during your lifetime

It may be appropriate to gift part or all of your farm during your lifetime to limit the amount being inherited on your death and ensuring that you are taking advantage of the 7 year gifting rule. However, this is not always as straightforward as you might hope and if you continue to occupy the land gifted (or benefit from it anyway), you will still have to include the land value in your Estate calculation. This is commonly termed a ‘Gift with reservation of benefit’.

Disposing of assets may create capital gains tax implications which should be carefully considered.

Consider making gifts between spouses which are exempt from any Capital Gains liability and not considered as gifts for Inheritance tax purposes thereby creating the opportunity to use two £1 million allowances.

Seek independent financial advice on making other gifts of cash, property and other assets to reduce the value of your estate subject to the seven-year rule.

Setting up/Establishing a Trust – PRIOR to 6th April 2026

Some (not all) trusts have their own taxable regime (called relevant property trusts) and attract tax charges as assets enter into a trust and exit the trust and on each 10-year anniversary. If you set up a trust prior to 6^th April 2026 you can take advantage of the unlimited APR and BPR putting assets into a trust but the trust will be subject to the new regime limit during its lifetime and if the settlor (the creator of the trust) dies within seven years of creation, it will be subject to the new rules.

Ending a Trust – PRIOR to 6th April 2026

If you have assets in a relevant property trust and choose to end the trust prior to 6^th April 2026, you can take advantage of the unlimited APR and BPR to ensure that there are no exit charges to pay.

Investing in Environmental Land Management Schemes

The government have extended the scope of APR to cover land managed by environmental agreements and government bodies, such as the Countryside Stewardship Scheme and the Sustainable Farming Incentive.

Other important points to consider:

AIM Shares:

Currently AIM shares receive 100% BPR relief. From 6^th April 2026, AIM shares will only receive 50% BPR relief regardless of their value. For those facing a significant inheritance tax bill, AIM shares are a popular IHT vehicle to help limit the inheritance tax bill on death. They do still offer some planning advantages as they only need to be held for two years before death to claim BPR relief.

Pensions:

From April 2027, pension funds will now be part of an individuals inheritance tax calculation on death. It is advisable to seek independent financial advice prior to 2027 to ensure that your lifetime planning, saving and spending habits are as tax efficient.

Domicile:

Following 6^th April 2025, the current domicile-based IHT regime will be replaced with a new residence-based IHT regime, potentially exposing worldwide assets of those resident in the UK but domiciled elsewhere.

Guidance:

Unfortunately, there is still a lot of uncertainty as the Government is yet to draft any legislation and this isn’t expected until later on in the year. It is likely there will be a short period between the legislation publication and the legislation coming into effect, so it is advisable that you seek assistance now.