The Government’s long-awaited draft legislation on Agricultural Property Relief (APR) and Business Property Relief (BPR) confirms a seismic shift in how succession planning will work for business owners and landowners. Writing for IFA Magazine, Gavin Birchall of Birketts LLP outlines the key provisions and urges financial advisers to help clients act now and suggests practical steps to take – before generous reliefs are capped from April 2026.
The long-awaited draft legislation confirms key changes
After announcing sweeping changes to APR and BPR in the Autumn Budget with a distinct lack of detail, the government finally published the draft legislation on APR and BPR on “Legislation Day” yesterday before the parliamentary summer recess. As perhaps anticipated, this is broadly in line with the initial proposals and subsequent consultation on the application of the rules to trusts. Importantly, the draft legislation confirms that the £1 million allowance will not be transferable between spouses – put simply “use it or lose it”.
Minimal concessions despite significant lobbying
Disappointingly for many, the Government has made little concession to extensive lobbying from both the rural and business communities and while the legislation is still subject to amendment, it seems highly unlikely that there will be any material changes. Those considering the succession of their farms and businesses will need to take action quickly to consider whether it would be beneficial to make gifts of business property/agricultural property prior to the implementation of the new rules from 6 April 2026. Existing trusts should also be reviewed to establish the extent to which the new rules may impact them and when they will impact.
A new cap on APR and BPR relief from April 2026
Under the revised rules for inheritance tax set to be enacted in the Finance Bill 2026 to take effect from 6 April 2026, qualifying agricultural and relevant business property will no longer attract unlimited relief. Instead, the combined value of qualifying agricultural and relevant business property attracting 100% relief will be capped at £1 million. Relief for both individuals and trusts will be limited to 50% thereafter. In a very minor concession, the draft legislation includes provision for the £1 million allowance to increase in line with indexation from 6 April 2030.
Key points confirmed in the draft legislation
In summary, the draft legislation also confirms that:
- If an individual makes a gift of business property or agricultural property which qualifies for BPR or APR (qualifying property) and survives for seven years, that individual’s £1 million allowance is refreshed.
- There will be a single £1 million 100% allowance limit spread across qualifying property settled into trusts by an individual on or after 30 October 2024 (the Trust Relief Allowance).
- Pre-30 October 2024 Relevant Property Trusts which held qualifying property will have an automatic £1 million Trust Relief Allowance per such Trust which will determine how inheritance tax is charged on appointments out of trust and ten-yearly charges.
- However, pre-30 October trusts will not be impacted by the new allowance rules until the first 10-year anniversary charge that falls on or after 6 April 2026. In calculating the 10-year charge, the qualifying property will not be treated as having been comprised in the settlement until 6 April 2026, thereby reducing the extent of the 10-year charge which would otherwise arise.
- For Trusts which held qualifying property on qualifying interest in possession terms as at 30 October 2024 and subsequently become a relevant property trust (i.e. on the death of the life tenant), there will be a £1 million Trust Relief Allowance for 100% relief.
- The ability to pay IHT by interest-free instalments over a 10-year period is extended to any agricultural or business property which is eligible for agricultural property relief or business property relief as well as shares in any company (regardless of whether it is eligible for business property relief). Previously there were restrictions on the ability to benefit from the instalment payment regime as well as the ability to benefit from interest-free instalment payments, particularly in relation to shares in companies.
- The allowance will be used up on a strictly chronological basis and split proportionately between assets which attract relief.
Act now to secure today’s unlimited reliefs
For those affected, there is a pressing need to seek advice on the impact of these changes. Any plans to transfer assets to the next generation should now be accelerated to “lock in” the existing uncapped relief from APR/BPR if such gifts are made before 6 April 2026. Outright gifts coupled with life assurance might be a straightforward solution, but if asset protection and control issues are a factor, there is still an opportunity for an individual to transfer 100% qualifying property exceeding £1 million into a trust before 6 April 2026 without attracting an IHT lifetime charge. If the person fails to survive for seven years, there is still a restriction to the rate of relief applying to the qualifying property in accordance with the new allowance rules. However, it does allow more value to pass into the trust tax-free and outside of that individual’s estate if the individual survives for seven years.
Valuation strategy may help reduce IHT exposure
For some assets, the ability to split ownership between a number of individuals/trusts could give rise to valuation discounts which would reduce the overall exposure to IHT. Having considered this point in detail, the government has confirmed that it does not plan to extend the existing rules for valuing ‘related’ property so that APR/BPR assets settled by the same settlor across separate trusts can be connected for valuation purposes. This concession may give rise to some opportunity to review ownership structures and consider whether “value-fragmentation” might serve as a tool to mitigate the overall tax burden.
Wills and tax burden clauses must be reviewed
Reviewing wills is also a pressing action point. Now that we know the £1 million allowance is not transferable, it is important to check that the structure of Wills still works and what little relief there now is, is not wasted. Consideration should also be given to who should bear the tax burden on gifts of specific assets.
