The recent Autumn Budget has seen changes to the Inheritance Tax Business Property and Agricultural Property Reliefs (BPR and APR respectively). There has been a but of noise about this in the media, played out as “unfair to farmers” – lets take a look at whats actually coming.
First, bear in mind these reliefs refer to Inheritance Tax only. IHT in almost all cases is a tax on monies left at death – there are some rare circumstances when IHT is chargeable on lifetime gifts, notably transfers into some trusts, but these are rare. Generally gifts made in lifetime are exempt from IHT so long as the donor survives seven years after making the gift. If the donor doesn’t survive seven years then a tapered amount of the gift falls into the estate on death. Such gifts are referred to as Potentially Exempt Transfers (PETs) as they are, potentially, exempt from IHT dependant on the seven years survivorship.
BPR is generally given at 100% on the value of a business, and 50% on assets owned personally but used in a business. APR is a similar set of reliefs at 100% and 50% on Agricultural (cf business) property.
- 50% APR deals with situations like Agricultural Land which is let rather than farmed (dependant on the tenancy terms)
- 50% BPR is most common for situations where a property, eg a shop of office, is owned personally, but used by a company or partnership which the owner is part of.
It is worth noting that everyone has a £325k IHT exemption (Nil Rate Band) – that slice of your estate is passed on free from IHT. This is uplifted by £175k to the extent there is a private residence (Residence Nil Rate Band) in the estate, so £500k total. If these allowances are not used then they are inherited by the spouse, giving the spouse £1m exemption on their estate. The Residence Nil Rate Band of £175k tapers at rate of £1 for every £2 where the net value of the estate exceeds £2 million.
What was announced in the Budget:
“The government will reform these inheritance tax reliefs from 6 April 2026. In addition to existing nil-rate bands and exemptions, the current 100% rates of relief will continue for the first £1 million of combined agricultural and business property to help protect family businesses and farms. The rate of relief will be 50% thereafter, and in all circumstances for quoted shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM.”
There is a bit more detail in HMRCs Summary on the Topic – Summary of reforms to agricultural property relief and business property relief
How will this play out?
- A married couple will, potentially still have £3m of 100% relief between them – each £325k Exemption, £175k Main Residence exemption (which for a farm would include the farmhouse) and £1m APR/BPR.
- Whilst the £325k Nil Rate Band and £175k Residence Nil Rate Band are transferable the £1m for BPR/APR isn’t so it will need to be planned more carefully.
- Over and above that £1m band relief on any further Business or Agricultural Property will be at 50% not 100%. This reduces the effective IHT rate from 40% to 20%.
- Any APR/BPR currently given at 50% will remain at 50% – it is only the reliefs currently given at 100% that will be restricted over £1m.
- In the case of a family business or farm then the PET regime still applies, so the restrictions can be sidestepped if assets are passed down the generations in good time, barring unexpected and premature death.
- There will probably be renewed interest in Life Assurance products tailored to cover a failed PET. Eg, parents make a gift of a £5m business to children at age 70, this is IHT free if the parents survive seven years, and a Decreasing Term Assurance policy could be used to protect some or all of the tax that would crystallise if there was a premature death.
A couple of further points:
- Investments on AIM (Alternative Investment Market) currently qualify for 100% BPR and hence are exempt from IHT. From April 2026 these will have 50% relief only, so an effective 20% IHT rate. There is no £1m threshold here, but the £325k etc still applies, as does the PET regime. This seems a reasonable restriction as they are listed, tradeable shares, albeit more risky than main market listed shares; a lot of packed IHT planning schemes have relied on AIM investments.
- There is a Technical Consultation due on the APR/ BPR changes in early 2025.
In summary, yes, some Businesses – all sectors – and some Farmers – may pay more IHT. But there is still quite a generous set of exemptions, up to £3m for a couple jointly, and straight forward opportunities for lifetime planning; the regime isn’t as benign as it was, but its hard to see that Farmers are particularly hard done by. Sorry Jeremy, no ones been shafted.