In the November Budget, Chancellor Rachel Reeves announced her intention to make significant changes to APR and BPR, which has generated a strong response from farmers and other business owners. In the following analysis, tax expert Adam Owens CTA, Partner for Tax Advisory at Xeinadin, explains how impactful they actually are, and what planning measures advisers could consider for those clients who might be affected.
Since the Budget, the inheritance tax (IHT) changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) have dominated the headlines with farmers flocking in their droves to protest outside Westminster.
In difficult socio-economic times, these new measures are seen by some as yet another hit on already struggling family businesses and local farming communities. But the Government’s defense is that few will be affected, and it is in fact closing tax loopholes for the mega rich.
It’s important for advisers to ask: who will actually be affected by the changes to APR and BPR, and what will the actual impact look like?
What are the new measures?
Under the existing tax rules, if you operate a trading business in the UK your estate will typically benefit from a tax relief (BPR) which allows the business to be inherited by the next generation, often without any inheritance taxes at all. A similar relief is available for agricultural businesses and farmland (APR), and has meant that successive generations of family business owners and farmers haven’t had to pay inheritance tax on these valuable assets.
As with many tax reliefs, there is a genuine and desirable economic reason for the existence. BPR and APR tax reliefs provide UK businesses with a degree of continuity. If every time a business was passed down the generations the owners had to pay HMRC 40% of its value, many businesses simply would not survive (or would at the very least need to be downsized, to fund this cost). This could have a significant and negative impact on employment.
However, it seems that this perspective has been consigned to the past. The government has announced that in 2026, the tax relief for trading businesses and farms will now be limited. The new threshold for the tax relief will be capped at £1million per tax payer (potentially £2 million for a married couple, though whether the reliefs are transferable between spouses is as yet uncertain), and anything over this limit will qualify for relief at only 50% (i.e. IHT will apply at 20%).
The result will be a significant change to the IHT exposure of many family businesses and farming estates.
Starmer’s farmer drama
Whilst the Government has contended that only the minority of businesses and/or farms will be caught by these tax changes, many do not agree. The Society of Trust and Estate Practitioners take a similar view, stating “it is unrealistic to think that the average farmer will not be financially impacted by this reform”.
The response to the APR and BPR adjustments has been overwhelmingly negative, particularly amongst farmers. The National Farmers Union has referred to the Budget as “disastrous” for family run farms. The main issue for those farmers affected is finding the money to pay IHT when the asset in question is the family farm. A working farm might only generate £50,000 annually but be worth several million £s due to the value of the land. How else will they find the money without breaking up the farm?
The value of farmland is expensive and has – at least in part – been driven up by already wealthy people purchasing farmland to avoid IHT. However, there is a distinction between targeting and taxing this group of people, rather than the family farmer that owns a generational farm. If the goal of the government was to attack those that are using family farmland to dodge inheritance tax, there are much better ways to do it – significantly raising the allowance would be a decent start.
However, whilst it is true that many ordinary farmers will be caught by these changes, it is important to highlight that – for many – the cost may not be as painful as some are making out. If you have a farm that is worth £3.2million, with the correct steps only £200k of the estate may be taxable (resulting in a tax cost of £40,000, payable over 10 years).
Perhaps more importantly, with a little forward planning – and involving the next generation in the business earlier on – it may be possible to ensure these negative tax changes do not apply at all.
Planning opportunities
In terms of potential solutions, or ways to adapt to these changes – assuming the rules are brought in as expected – the following options should be considered:
- Direct Gifts
Firstly, one clear way to avoid the APR/BPR restrictions, is to simply ensure that the family farm or business does represent an asset of the death estate.
Estate planning will often make use of gifting. If this takes place 7 or more years from the date of death, it can ensure that the relevant assets do not form part of the chargeable estate. Whilst gifting the family business or farm may mean giving up ownership and control earlier than expected, in principle it need not be a bad thing.
The transactional tax implications will of course need to be considered, as a lifetime gift would ordinarily be subject to capital gains taxes. However, most businesses that qualify for APR or BPR should also qualify for Gift Relief, allowing the gift to take place without capital gains tax where the relevant conditions are met.
Care will need to be taken here. Where a transferor continues to benefit from gifted property, the Gift With Reservation rules can apply to make the gift ineffective for inheritance taxes. However, these rules can often be managed with careful planning.
- Trust Transfers
Where a gift to the next generation may be considered unviable, or additional protective measures are required, transferring assets into trust may still be viable in the short term.
Until 6th April 2026 individuals are still able to transfer unlimited values of BPR or APR qualifying assets into trust, whilst retaining their £1 million lifetime allowance in full.
This may provide affected taxpayers with a way to reduce the estate value – in respect of qualifying shares, businesses assets or the family farm – down to the lifetime allowance, whilst continuing to exercise a degree of control as settlors and/or trustees of the trust.
Inheritance taxes may still apply at the 10 year period or on exit – if the £1 million allowance for settled property is exceeded – but this would be at a relatively manageable 3% of the excess value (i.e. 6% relieved at 50%).
Care should be taken if this strategy is to be adopted – much like direct gifts – if the transfer is made within 7 years of death, the relevant assets may still fall within the death estate.
- Life Insurance
Finally, if a lifetime gift is simply not feasible, it may instead be possible to instead seek life insurance to spread the potential inheritance tax cost over an affordable period.
What about AIM Shares
Another area to consider is the implication this will have for AIM shares. In addition to the changes to general qualifying business property – the Government will also reduce the rate of relief available for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM shares.
In effect, these types of assets will not qualify for the BPR-APR lifetime allowance at all, and will instead be relieved at only 50% in all circumstances.
Many people will have built their inheritance tax planning strategies around investing in AIM shares – if so, these plans should be reconsidered as a result of these significant changes.
What should clients do now?
Until HMRC’s upcoming consultation on these changes is completed, and the legislation is published (and receives Royal Assent) there is always a chance that these tax changes may be altered, or watered down.
Succession planning with the family business is about far more than taxes – its about ensuring the next generation are equipped to take the business forward into the future. We therefore recommend against clients making rash decisions based solely on possible (albeit expected) tax changes.
Clients should certainly maintain an awareness and, if appropriate to do so, may be advised to accelerate their plans. Apart from that: watch this space. From April 2026 onwards, many clients will need to seriously consider their estate planning strategies, with the support of their professional advisers.
About Adam Owens
Adam is the Partner for Tax Advisory at Xeinadin. He leads the firm’s Tax Advisory division, offering expert direct tax services across regional offices. With over a decade’s experience in specialist tax advisory for entrepreneurs and owner managed businesses, Adam’s extensive knowledge and leadership are integral in strengthening Xeinadin’s position as a UK leader in professional services
