Changes to Inheritance Tax that were announced in the Budget have caused consternation to farmers and business owners across the UK. What exactly is changing and what could this mean for you?
Agricultural property relief (APR) is a type of Inheritance Tax relief that helps reduce the amount of tax that is paid when farmland is being passed down to the next generation. Currently, the relief has no financial limit, meaning regardless of the value of the farmland, it could be passed on with no Inheritance Tax payable.
Business property relief (BPR) is similar but relates to business assets included in a person’s estate. Again, this relief currently applies without any financial limit to the relief.
Clearly, both reliefs have played an important role in families being able to pass on agricultural and business assets without having to worry about Inheritance Tax.
Based on the Autumn Budget announcement, there will be a new £1 million limit where 100% relief will be given. The relief will then reduce to 50% on the value that exceeds £1 million.
It is important to note that the £1 million allowance is a combined one for APR and BPR purposes. An estate that has both qualifying business and agricultural assets will only have a single £1 million allowance to use.
In addition, (quoted) shares that are designated as ‘not listed’ on the markets of recognised stock exchanges, such as AIM, will only ever get 50% relief regardless of whether they would otherwise qualify as agricultural or business assets.
The intention is that this change will take effect from 6 April 2026. This mean there could be some scope for planning or transferring of assets that will minimise your exposure to Inheritance Tax when the new limits come into force.
If you have agricultural assets valued at more than £1 million, it doesn’t necessarily mean you will have to pay Inheritance Tax.
Inheritance Tax is calculated by first deducting any reliefs (such as APR and BPR) and then deducting any allowances that apply. Each individual has a nil rate allowance, currently £325,000, and there is a residence nil-rate band limit of £175,000.
If your estate is likely to be subject to Inheritance Tax, then it might pay to consider adopting estate planning strategies to reduce your exposure. As a starting place, it is a good idea to assess the current value and makeup of your estate.
Please get in touch with us if you would like any help with doing this, or if you would like to discuss whether there are any estate planning strategies that are open to you.
At Optimum, our legal and tax teams help individuals, farmers and business owners across Swindon, Wiltshire, Cheltenham, Gloucestershire and the surrounding area.
