At the Budget in October 2024, the Chancellor, Rachel Reeves, announced changes to the way in which the IHT rules will work from 6 April 2026. The specific reform relates to the rules around Business Property Relief (“BPR”) and Agricultural Property Relief (“APR”).
The proposed changes will significantly restrict the availability of BPR and APR (there has been lots in the press around the new £1m allowance), for owners of trading businesses, companies and farms, and this is likely to have a substantial impact on succession planning for families.
As of 27 February 2025, we now have some further information from HMRC on these proposed changes, and specifically how they will relate to trusts, albeit rather than guidance, what we actually have is the start of a “consultation” process. Draft legislation therefore appears to be some way off still.
The consultation process sets out the way in which HMRC are proposing that the new rules will work, and it then invites input from stakeholders to provide their views on HMRC’s proposals.
The consultation runs for 8 weeks, until 23 April 2025, at which point, the responses will then be collated, assessed, and “Stage 2” of the process will then commence.
According to HMRC, Stage 2 will involve them “determining the best option and developing a framework for implementation including detailed policy design.”
Following this, “Stage 3,” will then be the drafting of legislation.
That legislation will then need to go through the various debate and reading stages of parliament, following which it should then be enshrined in law.
THE IMPACT
Understandably, owners of businesses, companies and farms are concerned as to how the proposed changes will impact their families, with succession plans now being rethought, and those valuable businesses for which cash may not readily be available, having to work out how any IHT liabilities may be settled by their families on their deaths.
Many families are looking to pass their businesses down the generations by way of lifetime gifting, either to the next generation(s), or to trusts. Trusts are likely to be particularly useful where families have concerns about responsibility and/or asset protection. The proposed rules give a window up until 5 April 2026 in which a significant transfer of value to a trust may be worthy of consideration, before the new £1m allowance bites from 6 April 2026.
However, there is likely to be a reluctance to give valuable assets away until taxpayers have certainty that the new proposed rules will become law, and certainty only comes with knowing that the new rules will be written on the statute book.
Guidance, although helpful to a degree, does not provide certainty.
If we do not have the new rules written in law until later in the year – perhaps after parliament’s summer recess, then this gives even less time for families to decide what to do before the 6 April 2026 deadline.
With only 13 months until the new rules are planned to take effect, this is likely to give taxpayers a very short window in which they will have certainty as to how and when the rules will actually apply.
Businesses are crying out for certainty and stability, however we are still a long way off that.
GET IN TOUCH
For further information or advice on how the proposed changes could impact your personal circumstances, please get in touch with one of our experienced tax advisers to discuss further.
Roger Phillips – roger.phillips@pmm.co.uk
01254 604337
07719 020342
Wendy Anderson – wendy.anderson@pmm.co.uk
01254 604304
07384 257578
We will be preparing a summary of the proposed operation of the rules and publishing these on our website shortly.
