On 21 July 2025, the government published the first draft of the Finance Act 2025/26 which contains the draft legislation around IHT and the new rules around Business Property Relief (BPR) and Agricultural Property Relief (APR). Tax partner, Roger Phillips, explains more in our latest blog…
Key highlights
The draft legislation is largely as expected – albeit with two changes….
- The £1 million allowance will be indexed
The standout announcement is that the new £1 million allowance for BPR and APR will now be indexed by inflation from 6 April 2030. This aligns with the expected uplift in the general IHT nil-rate bands – namely, the standard nil rate band and the residence nil rate band from that date.
- Anti-fragmentation rules will no longer take effect
The anti-fragmentation rules that were expected to be brought in to deter individuals setting up multiple trusts to access greater levels of minority discount, will not take effect.
However, where multiple trusts are set up by the same person, they will share a £1m allowance between them, and this will be allocated chronologically i.e. earlier trusts effectively getting the allowance before later ones.
The thinking behind this is that if someone had instead made a gift to multiple individuals, then those gifts would get the benefit of minority discounts, and therefore if someone wished to gift by way of a transfer to a trust, rather than directly, then it would be discriminatory for there to be different treatment.
HMRC consider that the sharing of the £1m between trusts should be sufficient to dissuade multiple trusts.
They may well be right – and my view would be that if people did look to set up multiple trusts, then HMRC would likely pore over the terms of those trusts in the event that significant discounts were being sought – as if the terms were similar, a challenge under the general anti-abuse rule (also known as the “GAAR”) – would not be out of the question.
HMRC’s stance on the reforms
The government has justified these reforms on the basis that they will modernise and simplify BPR and APR while improving fairness in the system. The full policy paper outlines these objectives in greater detail, and it’s worth noting that the majority of the previously proposed changes remain intact in this first draft.
What does this mean for families and trustees?
With a firm implementation date of 6 April 2026, the clock is now ticking.
Families, trustees, and business owners should urgently review their estate planning strategies and ownership structures to ensure they are well-positioned under the new rules.
In particular, for those looking to make gifts into trust, there is a window between now and 5 April 2026 where there is more flexibility for planning.
Final thoughts
The BPR and APR changes are coming in from 6 April 2026, broadly as expected, therefore it is more important than ever that families speak with their advisers now to determine whether they should be reviewing their ownership structures before April 2026.
