Posted by davidhorn - November 21, 2024 2:00 pm IHT relief changes – reforms to business and agricultural property relief

In sweeping changes to inheritance tax (IHT), the Chancellor announced in the budget significant reforms to Business Property Relief (BPR) and Agricultural Property Relief (APR).

Currently, there is no limit to qualifying assets that can obtain up to 100% relief on their value from IHT using BPR and APR. The new rules, that will come into effect from 6 April 2026, will significantly change the current regime. Relief will be restricted to the first £1m of combined qualifying assets that will be exempt from IHT, with 50% relief thereafter (reduced rate of 20% IHT, rather than the standard 40%).

It is important to note that the £1m combined BPR and APR relief is per individual, and the reliefs kick in after the standard IHT nil rate band (NRB) of £325,000 per individual, £650,000 per couple and the additional nil-rate band for property (RNRB) bringing the total tax-free allowance to £1m. Effectively this would give a married couple or civil partnership a tax cushion of £3m. Although, it is worth noting, that unlike the NRB and RNRB where unused allowances can be transferred between spouses, the BPR and APR relief is non-transferrable, so it is worth considering making sure both spouses have an interest in the qualifying assets.

On a further sour note, the Chancellor also confirmed a freeze to the main and residence nil-rate bands to 2030.

It was also announced that the new rules will apply to lifetime transfers, on or after 30 October 2024, if the donor dies on or after 6 April 2026. So, unfortunately, it is not as simple as giving away assets prior to the 6 April 2026.

Some things to consider, that could help to mitigate the changes, include:

  • Review wills to ensure qualifying assets for BPR and APR are in the interests of both spouses or civil partners.
  • Review existing IHT planning to ensure it is still relevant.
  • Calculate potential IHT exposure, particularly where some farmers could be asset rich but cash poor, as having the liquidity to settle the tax could be a significant burden and may impact the going concern of the business. Therefore, a review of saleable assets could be undertaken to ensure the tax can be covered.

At MFW we can offer advice and planning around IHT, please contact your local office for further help and assistance.