Changes to Agricultural Property Relief (APR) and Business Property Relief (BPR)

Autumn Budget 2024

In the Autumn Budget, the Government announced significant changes to two valuable Inheritance Tax (IHT) reliefs, effective from 6 April 2026. These changes are likely to impact many farms throughout the United Kingdom.

Currently qualifying assets can attract 100% relief from IHT, with no overall cap on how much relief can be claimed. From April 2026, the first £1 million of combined agricultural and business assets will continue to attract no IHT, but assets over £1 million will be taxed at half of the normal IHT rate so 20%. Any unused part of the £1 million allowance will not be transferable between spouses.

The £1 million allowance will apply from 6 April 2026 to: Property in a person’s estate on death Gifts made by individuals on or after 30 October 2024 and in the 7 years before death, if the death occurs on or after 6 April 2026 “Lifetime chargeable transfers” e.g gifts into trust

Each individual is entitled to their basic IHT allowance, known as the Nil Rate Band (NRB), which is the portion of their estate taxed at 0%. A Residence Nil Rate Band (RNRB) may also be available, provided the individual leaves their main home to their direct descendant (i.e. children or grandchildren) and the overall estate value is below £2 million before IHT reliefs. If the estate exceeds this threshold, the RNRB is reduced by £1 for every £2 by which the estate value exceeds £2 million. The Chancellor also confirmed that she will freeze the main and Residence Nil Rate Band thresholds until 2030.

What are the changes likely to mean for those affected?

The changes will have a significant impact on the IHT payable by most estates where the value of qualifying assets is more than £1 million. It is suggested that the allowance of 100% relief on the first £1 million of assets will protect “small family farms”. However, with average UK land values at £8,700/acre, holdings over 115 acres of bare land could be subject to Inheritance Tax at 20% (£1,740/acre), with the potential size threshold for equipped farms or those with development land being considerably less.

The new threshold includes both APR and BPR therefore combining the value of land, machinery, buildings and other assets.

In many cases, family farms with even modest operations could find their assets exceeding £1 million.

What should I do now?

Landowners and farmers should review their assets and consider succession plans between now and April 2026. For some, making these plans now and resolving to give away assets during their lifetime to the next generation may be more appealing than it has been previously. There will be no single answer that is right for everyone. Most IHT planning involves a 7-year window until it is fully effective – meaning the sooner you act the better.

Until draft legislation is published, there is a lack of clarity around some of the technical detail. It remains possible that the new rules will be varied. We suggest giving consideration to the following:

Gift assets to the next generation where possible. These assets will fall out of your estate entirely if you survive for 7 years after the gift. For a gift to be successful, the donor cannot continue to benefit from the assets unless they provide full consideration. In the example of a property, this means paying a full market rent for continued occupation/enjoyment. If the donor continues to derive a benefit without paying full consideration, there is a “reservation of benefit” so the gift is treated as not having occurred and the value of the gifted assets remain in the donor’s estate for IHT purposes. The potential IHT savings therefore needs to be weighed against income and capital requirements of the older generation.

New trusts

There is a window of opportunity until 6 April 2026 to settle assets worth more than £1 million that qualify for 100% relief into a new trust. Whilst the trust assets would be subject to 10 yearly and exit charges, the maximum effective rate of tax would be 3% every 10 years or on exit, compared to 20% if assets are owned by the settlor at the time of their death.

10 year charges can be planned for and the IHT paid over 10 years. For multiple trusts created by the same settlor on or after 30 October 2024, the £1 million IHT allowance will be divided between the trusts.

Restructuring of wills

Recent discussions have suggested that the new IHT allowance is effectively £3 million rather than £1 million. An allowance of £3 million involves fully utilising the NRB of £325,000, RNRB of £175,000 and the £1 million IHT reliefs cap for the death of both spouses. This may not be possible or practical in all cases. This will often involve restructuring the business, reorganising property ownership and updating wills, as the following example illustrates:

Mr M. farms 375 acres that he owns as a sole trader. The farm is valued at £4 million. While Mrs M. assists with farming, she is not formally involved in the business. Under their wills, each spouse will inherit the other’s assets, and the farm will only be passed to their children upon the second death.

If Mr M. takes no further action, the IHT liability under the new rules will be calculated as follows: on the first death, there is no IHT due as gifts to spouses are exempt from IHT. The NRB and RNRB have not been used on the first death and are available for the second death. The position on the second death is as follows: