We sat down with PM+M tax partners, Roger Phillips and Wendy Anderson, to find out more about the inheritance tax (IHT) changes announced in the Autumn Budget on 30 October 2024, with a focus on Business Property Relief (BPR) and Agricultural Property Relief (APR), and what those changes are likely to mean, in particular, for families with businesses and farms….
Changes to APR and BPR and the effect on family businesses
First up, we were joined by Roger, who answered some questions on the changes to APR and BPR.
Roger explains what the Chancellor’s announcements mean for family businesses.
Can you summarise the changes that the Chancellor made to BPR and APR in the Budget on 30 October?
“The Chancellor announced significant changes to BPR and APR, which will, in the main, take effect from 6 April 2026.
The effect of BPR is that is has always applied to give tax relief on death in relation to certain types of “business assets,” including shares in family companies and assets used by sole traders or partnerships, giving relief of up to 100% in the death estate. What that means in simple terms is that if you held shares in the family trading company, you could die whilst holding those shares – whatever their value – and their value shouldn’t attract an IHT charge.
APR applies in a similar way – typically to farms and farmland which are either owner occupied by the farmer themself, or where they are let to tenant farmers. APR works by removing the “agricultural value” of the farm from the estate when working out the IHT.
These reliefs have been available for decades and have operated to ensure that family farms and businesses can be passed down the generations, without triggering punitive IHT charges that could otherwise cause families to have had to sell those assets, to generate some money to pay the taxman.
The new rules effectively tear up the rulebook that everyone has become so used to. Now, individuals will be entitled to a £1 million allowance on their combined APR and BPR assets at death and any value over and above that allowance is then potentially subject to IHT.
Assets falling within the £1m threshold at death will be entitled to 100% relief (BPR and APR – although there is only one allowance per person) and the balance of value attributable to any BPR/APR qualifying assets that aren’t sheltered by the £1m will then receive only 50% relief.
IHT will then be applied to that remaining 50% at the normal 40% rate – and that will therefore mean an IHT rate of 20% on that proportion of the assets.”
What will this mean practically for family businesses?
“For family businesses, these changes are likely to lead to a IHT bills where the values of the business assets exceed £1m (assuming their other allowances have been used up already).
IHT is payable within 6 months of the death, and therefore families will have to find this money to fund the tax. In addition, it may well be the case in some circumstances that income tax charges could be triggered as part and parcel of families accessing these funds to pay the taxman.
In many cases it will be possible to pay the tax in 10 equal annual instalments, although this isn’t a perfect solution.
Many family businesses have relied on BPR to pass shares down without triggering IHT and there are many elderly shareholders now in a position where they will not know what the most sensible thing to do is.
They have been holding onto shares, thinking they were safe in the knowledge that they could pass the shares onto their children without IHT. This has changed completely.
Family businesses may want to consider strategic steps such as early gifting to move value out of the estate, or to access other individual’s £1m allowances, creating family trusts, or restructuring ownership to minimise IHT exposure, with a view to safeguarding the family’s long-term business interests.
If gifts are being made, then CGT always needs to be considered. Term insurance might also need to be considered as a means to generate some cash to pay tax on gifts that aren’t survived by 7 years.
This all needs careful thinking through – and every family’s circumstances will differ.
As well as tax, there will be commercial and family considerations to think about.
Is it sensible for a 20-something year old – who may get married – then may get divorced – to receive and hold valuable shares in the family company?
Trusts may offer some protection against this, but post April 2026, there will be a cost to transferring shares into trust where their value is high. Up until now, trusts have offered a genuine solution as a means of protecting assets for families.
There might still be a window of opportunity here to undertake some planning until the rules come into effect fully.
Business owners should also be having their wills reviewed to make sure they are as tax efficiently drafted as possible. This is important because the £1m allowance is not likely to be transferable to a spouse – unlike the nil-rate band – and therefore families should ensure their affairs are structured as to maximise availability of the new reliefs.”
Is it as simple as giving my shares away in the family company now?
“No. Each case is different. Ages of shareholders and family dynamics will all need to be thought about carefully in the context of gifting.
A gift of shares made now will only fall to be treated under the old rules – meaning full IHT relief – if the donor dies before 6 April 2026.
A gift now would fall under the new rules – i.e. partial relief – if the donor passes away after on or after 6 April 2026 and within seven years of the gift having been made, where that gift has been made on or after Budget day.”
I have already made some gifts during my lifetime – how are these impacted by the new rules?
“According to the limited guidance that the government has issued, it appears that pre-Budget day gifts will generally still be subject to the old rules if the donor were to pass away within seven years after having made a gift – even if this death takes place after 6 April 2026.
There’s therefore some protection for those that made gifts before the Budget.”
Are there likely to be further changes to IHT in future Budgets?
“There could well be. We are likely to see more in the way of gifting, with families hoping that gifts can be survived 7 years so that they drop out of the donor’s estate.
The next step could be for the 7 year rule to be looked at – and you could envisage them extending it to try to collect some more tax.”
What should I do next?
Do not rush into anything yet – speak to us in the first instance.
The government have only, at this stage, released some relatively scant guidance. More detailed information is set to follow in the early new year – and hopefully we will receive some draft legislation in the not-too-distant future.
I would suggest some early conversations with your tax adviser/lawyers would be sensible, with more detailed guidance being sought once we have a bit more clarity, before deciding what, if anything, you should do.”
How will changes to BPR and APR affect farmers?
Next up, we are joined by partner, Wendy Anderson, who focuses on how the Budget announcements could affect farmers…
Can you explain how a typical farmer might be impacted by these changes?
For farmers, these changes could mean a reduced relief on larger agricultural estates – including farms and landed estates.
Currently, most farmed agricultural land can qualify for 100% APR if certain conditions are met. Some farmland qualifies for relief at a reduced 50% rate.
Under the new rules, the first £1 million of agricultural value will qualify for 100% APR, and any value beyond that will be relieved at 50% – in the same way as for BPR.
This change could impact farmers whose land value significantly exceeds the £1 million threshold, possibly leading to IHT liabilities at death from 6 April 2026 onwards.
If you think of a typical 200 acre farm, made up of agricultural land with a value at £10k per acre – that’s £2m of value. Assuming there’s a house and some other assets in the estate, there will be IHT to pay on death.
Should I consider giving my farm away now?
Transferring assets now may not necessarily be the best solution. Each case needs careful thought and there might be some alternative options worth exploring.
Each individual situation is unique, so I would recommend getting in touch with your PM+M tax adviser to discuss your circumstances in more detail before acting.
Are trusts impacted by these new changes?
Yes, trusts are impacted. Trusts pay IHT every 10 years – currently at up to 6% of the value of the assets in the trust. Although where those assets qualify for BPR/APR, they, until now, have typically not been subject to this charge. From 6 April 2026, this will change and trusts will be subject to the new rules around APR/BPR.
Existing trusts that were set up before 30 October 2024 will have their own £1 million allowance to use against BPR/APR property when calculating the 10 year charge, whilst “new” trusts established on or after Budget day will share a single £1 million allowance if they have been created by the same person.
It’s not completely clear how trusts will be affected for value over the £1m – it is likely that a 3% effective rate will apply every 10 years to BPR/APR property in excess of the £1m – although we need more guidance from the government on that.
Under the old rules, some of my farm qualified for 100% APR and some qualified for 50% – will these differences still be recognised by the new rules?
Yes, the distinctions in relief percentages will largely be retained under the new rules.
Agricultural assets currently qualifying for 100% APR will remain eligible for full relief up to the £1 million threshold. Assets previously receiving 50% APR or BPR will continue to be treated as 50% relieved and will not fall into the new £1 million allowance.
How much detail do we actually have at this stage?
Whilst the government has provided the basic framework, we are still awaiting some specific detail.
For example, there are questions regarding the ‘refreshing’ of the £1 million allowance, how reliefs will be apportioned between APR and BPR, and the exact application of these rules to trusts.
The consultation in early 2025 is expected to clarify these points.
Could Labour U-Turn on this?
In theory, yes.
Farmers are sometimes referred to as asset rich and cash poor. For larger farms that aren’t covered by the £1m allowance, and the normal nil rate bands (which for a husband and wife can give another £1m of allowance), IHT will need to be paid within 6 months of death.
Finding that cash may be a challenge – particularly if it has to be extracted from a company – in which case there would be associated income tax charges. The IHT can be paid in 10 equal instalments, but clearly that’s not a perfect situation.
The income tax point might be moot if farmers have to sell land to generate cash, just to pay the IHT.
Farmers are worried, and very vocal about this. I suspect if there are to be any “U turns” in relation to this Budget, then the “Tractor Tax” might be the one which is reconsidered. It will unlikely be a complete U turn – but there might be some additional protections built into the new rules.
Get in touch
If you’re concerned about how the recent changes to BPR or APR could impact your family business or farm, now is the time to start planning.
Reach out to our experienced tax advisers at PM+M to discuss your options and ensure your succession planning is robust enough to minimise the potential IHT burden.
Roger Phillips – roger.phillips@pmm.co.uk
01254 604337
07719 020342
Wendy Anderson – wendy.anderson@pmm.co.uk
01254 604304
07384 257578
