In the Autumn Budget 2024 the government announced changes to agricultural property relief (APR) and business property relief (BPR) from inheritance tax, while mainting fixed the inheritance tax (IHT) nil-rate band for a further two years.
The government will publish a technical consultation by early 2025 with reforms planned for April 2026.
Inheritance Tax (IHT) in England and Wales: exemptions and reliefs
The IHT is a tax payable on the estate of someone who has died, including all property, possessions and money.
The IHT is charged where the value of the estate exceeds their available nil-rate band (£325,000). On the amount exceeding this threshold the maximum IHT rate is 40% (except transfers to spouse or partner, which are completely exempt).
The IHT applies not only to the UK residents but also to non-UK residents. However, the scope of the tax is limited in case of non-residents. For non-residents, inheritance tax is normally chargeable only on the UK assets/properties.
Currently, IHT is also payable on gifts made by an individual up to seven years before their death.
For property inherited by children or grandchildren, there is a supplemental exemption of £175,000 so-called residence nil-rate band, introduced on 6 April 2017.
At the Autumn Budget, the government announced that the following will be frozen until 5 April 2030:
- the nil-rate band (NRB) at £325,000;
- the residence nil-rate band (RNRB) at £175,000 (the RNRB remains available only if the house is inherited by direct descendants); and
- The RNRB will continue to be clawed back at a rate of £1 for every £2 where the net value of the estate exceeds £2m.
Changes to Agricultural property relief (APR) and Business property relief (BPR)
Currently APR and BPR are available at a rate of 100% or 50% (based on eligibility criteria) with no cap on the total amount of relief.
APR allows a person to pass on the agricultural value of some property in the UK free of IHT, including land or pasture used to grow crops or rear animals and farm buildings, and the amount of relief is currently unlimited where all of the conditions are met.
Assets that may qualify for BPR including a business or an interest in a business, land, buildings or machinery used in a business, and shares in an unlisted company. BPR is currently available at:
- 100% on a sole trade or partnership business, shares in an unquoted trading company and unquoted securities where there is a controlling interest;
- 50% on business assets owned personally and used by their trading company/partnership or used in the business of settlement in which the transferor has an IIP.
However, at the Budget, it was announced that the government will reform APR and BPR from 6 April 2026.
- A 100% rate of relief will be available for the first £1m of combined agricultural and business property (collectively “relievable asset”) up to a value of £1 million, with a reduced rate of 50% for the value of any relievable asset over £1m.
HMRC has provided the following example, the allowance could be used against £1m of property qualifying for business property relief, or a combined £400,000 of agricultural property relief and £600,000 business property relief qualifying for 100% relief. If there are more than £1million of relievable assets, the £1million allowance will be allocated proportionately across the qualifying assets (in contrast to the current rules pursuant to which APR applies in priority).
- The rate of BPR will be reduced from 100% to 50% in all circumstances for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM.
- Assets that currently only qualify for 50% APR/BPR will not use up the £1m allowance.
- The £1m allowance will also apply to trusts.
- If the £1m allowance is not fully used, any unused allowance cannot be transferred between spouses and civil partners.
The new allowance will apply to the following transfers:
- property in the estate at death;
- lifetime transfers to individuals on or after 30 October 2024 where the donor dies within 7 years of the gift and dies on or after 6 April 2026;
- chargeable lifetime transfers where there is an immediate lifetime charge, so for example when property is transferred into trust.
What Should You Do Now?
It’s important to note that the announced changes are currently only proposals and have not yet become law, meaning they may still be subject to amendments. While we await further legislation, we recommend the following steps:
- Assess your potential IHT exposure
Conduct a thorough review of all the assets and liabilities in your estate to understand the potential impact of the proposed changes on your inheritance tax (IHT) liability.
- Review your Will and Trusts
Evaluate your Will and any existing trusts from an IHT perspective. Provisions that were previously tax-efficient may no longer be optimal under the new rules.
Determine whether your estate will have sufficient liquid assets to cover any potential tax liabilities or if some assets may need to be sold to meet these obligations.
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The information provided in this article is of a purely general nature and is not a substitute for specific advice that may be requested here.
