Understanding the proposed changes to Inheritance Tax Relief for Agricultural and Business Property

The Government's consultation proposes APR & BPR changes from April 2026, introducing a £1 million allowance per individual and trust, impacting IHT.

The Government has recently published its much-anticipated consultation on the reforms to the Inheritance Tax (“IHT”) reliefs known as Agricultural Property Relief (“APR”) and Business Property Relief (“BPR”) announced in the 2024 Autumn Budget. This consultation relates particularly to the application of the proposed new rules in relation to trusts, but does also set out a summary of the reforms as they will apply to individuals. The question now is what can we learn from the consultation about how the reforms may be implemented, and what planning opportunities are there in the meantime?

APR and BPR

Under the current rules, APR and BPR are reliefs that, when the relevant qualifying criteria are satisfied, reduce the taxable value of the qualifying agricultural or business property by 100% (i.e. no IHT is payable) or by 50% (i.e. IHT is only payable on 50% of the value of the APR or BPR qualifying assets). Proponents of APR and BPR advocate that the reliefs play an absolutely vital part in enabling the succession of profitable and viable businesses on an IHT event (typically a death) and therefore avoiding the need for a sale which would otherwise be necessary to fund the IHT bill. These businesses are often entirely family-run and have been so for a number of generations and span various industries including agricultural . The original policy rationale behind the introduction of the reliefs therefore still rings true today; the reliefs are important not only for families, but also the wider economy.

The proposed reforms in a nutshell, for individuals and trusts

It is proposed that from 6 April 2026, APR and BPR will be restricted, and a new combined £1 million allowance will be introduced. In summary, at its most basic, this means that the first £1 million worth of assets or value that qualifies for APR and/or BPR will still qualify for relief at 100% (i.e. no IHT is payable). But, for any assets or value that qualify for APR and/or BPR in excess of the £1 million allowance, only 50% of the excess value will qualify for relief. As such, IHT at 40% will be payable on the other 50%.

Looking at this by way of an example, ignoring all other reliefs or exemptions that may be available depending on each individual’s circumstances, if an individual has £10 million worth of assets that qualify for APR:

• Under the rules in force currently and due to remain so until 5 April 2026, the full £10 million worth of assets would have qualified for relief at 100% and the IHT liability on these assets would have been nil.

• In comparison, with the announcement of the proposed new limited £1 million allowance; the first £1 million would attract relief at 100% and no IHT would be payable on this value. In respect of the remaining £9 million, only 50% of this value would attract 100% relief. As such, no IHT would be payable on £4.5 million of value but IHT would be payable on the remaining £4.5 million at a rate of 40% , which would result in an IHT liability of £1.8 million.

The consultation

The recently published consultation adds some (but arguably not enough) meat to the bones of the reforms announced. Key content includes:

• Every individual will have a £1 million allowance. The allowance will be available for use against the IHT bill arising on an individual’s death and as a result of an individual gifting APR or BPR qualifying assets during their lifetime, including into a trust.

• If an individual gifts APR or BPR qualifying assets and dies within 7 years of making the gift, the value of the gift will use some or all of their £1 million allowance that would otherwise be available on their death.

• Every individual’s allowance “renews” every 7 years.

• If an individual does not own £1 million worth of APR or BPR qualifying assets at their death, and has not used their allowance when making gifts in their lifetime, their allowance will be “unused”. Any “unused” allowance cannot be transferred to a spouse or any other person and is, in effect, wasted.

Quite separately to an individual’s £1 million allowance, when assets that qualify for APR or BPR are held in a trust, the trust will have its own £1 million allowance. A caveat to this, however, is that for a trust created after 29 October 2024, if an individual adds qualifying APR or BPR assets to more than one trust, the trust £1 million allowance will be split between the trusts. It is, therefore, clear from the information set out in the Government’s consultation that exactly how the trust £1 million allowance will operate in practice will potentially be quite complicated. This firm will certainly be raising a number of points when responding to the consultation as to where clarification is needed regarding the technical operation of the rules but also commenting on the practicalities e.g. the need for trustees of different trusts with a common settlor to liaise with each other.

Planning opportunities

The proposed new restrictions on the availability of APR and BPR are the most significant changes to the IHT regime for agricultural and business assets in many years and it will be imperative for any individuals who own (personally or via trusts) agricultural or business assets to review their succession and tax planning to ensure that they are still able to achieve their ultimate aims.

The consultation details some transitional arrangements for trusts in existence prior to 29 October 2024, but otherwise, and assuming the legislation ultimately comes into force, the proposed amendments will only come into effect fully on 6 April 2026, therefore giving shareholders, partners, sole traders and families a window of opportunity now for potential planning whilst still benefitting from the IHT regime currently in place.

In many ways, the consultation will bring to the forefront of minds a number of possibly quite tricky questions for families to consider when it comes to their succession planning. There does not seem to be a lot of time for consideration of draft legislation by advisors to those who are affected by these changes once that is published, which will be presumably be much later this year once the results of the consultation have been collated and reviewed. This firm will be making the point in is consultation response that the implementation timeline does, therefore, feel somewhat tight especially given the significance of the changes.

Although it will be essential for any individuals or families reviewing their succession and tax planning to take professional advice, these planning opportunities could include:

1. Reviewing how assets are owned within families;

2. Considering making lifetime gifts between family members, especially spouses and civil partners, to ensure £1 million allowances are used and not lost (because they will not be transferable);

3. Reviewing existing trust arrangements in the light of the impact of the new rules on any trusts;

4. Considering making distributions out of existing trusts and/or creating new trusts, especially before 6 April 2026;

5. Reviewing existing Wills, Letters of Wishes, Partnership Agreements, Articles of Association and Shareholders’ Agreements;

6. Reviewing valuations of assets and potential IHT liabilities that could arise;

7. Considering how future IHT liabilities might be funded, including the role of life insurance policies.

The Government’s proposed changes to APR and BPR do represent a significant change to how IHT reliefs will be applied to agricultural and business interests and will in all likelihood result in increased IHT liabilities payable by individuals and trustees.

Seeking professional advice will be crucial when putting arrangements in place to mitigate potential future IHT liabilities and look to secure the succession and long-term governance of viable businesses for future generations.

If you, a family member of yours or a business partner are looking to review your succession and tax planning and would like to discuss how the changes announced to APR and BPR could affect you, please contact Suzannah Farnell or Lucy Hargreaves.

If you have any questions or we can assist, please contact any member of Individuals, Families and Trustees team on 0113 244 6100.

You can also keep up to date by following Wrigleys Solicitors on LinkedIn.

The information in this article is necessarily of a general nature. The law stated is correct at the date (stated above) this article was first posted to our website.

Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors.