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Cat among the pigeons
In the 2024 Autumn Budget, the government announced major changes to allowances from agricultural property relief (APR) and business property relief (BPR) now known as Business Relief (BR). Namely, the 100% relief for Inheritance Tax (IHT) on these assets was significantly reduced.
Some assets (like Alternative Investment Market shares) reduced to just a 50% relief and other assets have a cap on the value that could attract a 100% relief.
The changes were set to impact people using these assets to reduce the IHT due upon their death. There was also an adverse effect to the way agricultural and family businesses incur taxes when assets are passed down upon death or gifted during a lifetime. It truly set the cat among the pigeons across the country!
Time to review
The situation is now better than first feared. This is thanks to policy adjustments which we’ll come on to. Still, anyone using, or considering using, APR or BPR as part of their estate planning needs to review the impact.
For many, these changes come alongside wider changes to non-dom rules and how pensions will be subject to IHT in the future. Making business property relief in estate planning potentially more important.
Careful planning is key
Let’s look at the backdrop, to understand what’s at play for the assets involved, and why careful planning’s so important.
Generational survival
Until recently, business relief could give up to 100% IHT relief on the entire value of agricultural property and business interests.
With IHT charged at 40%, it’s clear these reliefs are here to help farms and family businesses survive across generations.
Without these reliefs, agricultural property and business interests would be hit by large IHT charges when they’re passed down or gifted. This might force the sale of those assets and mean the end of those farms or business altogether.
Investing in qualifying assets
The broader planning opportunity lies in the ability for investors to access these reliefs by investing in qualifying assets. If those investments have been held for more than two years at the point of death, they could attract the same relief as an owner/manager of the business.
What the changes might mean for you
When the government first announced changes in 2024, the plan was to cap 100% relief at £1m from April 2026. This was met with strong opposition, lobbying and tractors rolled into London in protest. The cap has since been revised to £2.5m and can now be passed between spouses.
This means:
- Married couples and civil partners can now pass on up to £5m of qualifying agricultural or business assets free of IHT.
- Assets more than the cap still get 50% relief.
- Alternative Investment Market (AIM) listed shares are entitled to a 50% relief –effectively reducing the IHT rate from 40% to 20%.
Relook at your estate plans
With significant changes to IHT, estate plans should now be reviewed. Past assumptions or strategies may no longer be suitable. But despite the changes, including agricultural property or business property assets, or AIM listed shares, in your estate plans could be more valuable than ever.
Things to consider:
- Do you know your estates potential IHT liability considering the recent and upcoming changes to rules?
- It may be valuable to bring forward estate planning conversations and actions to optimise your personal matters.
- Efficient estate planning likely requires multiple interlinking strategies to get the best overall result.
We’re here to help
The incoming rules around IHT and changes to reliefs are complex. As always, you should get professional advice.
Our advisers at Partners Wealth Management are well placed to advise on how strategies can be incorporated into your affairs. And can help to optimise your tax efficiency.
Nathan Prior
Partner
nprior@partnerswealthmanagement.co.uk
020 7444 4053
Tax treatment depends on individual circumstances and may change in future. Eligibility for relief is determined by HMRC.
