Time-critical planning opportunity for farm and business owners

Posted: 27/02/2025

The government has today released its much-anticipated consultation on the inheritance tax (IHT) reforms announced in the Autumn Budget 2024, specifically addressing agricultural property relief (APR) and business property relief (BPR) in relation to trusts (the new rules).

The consultation presents significant opportunities for individuals to optimise their estate plans to maximise APR and BPR before 6 April 2026.

IHT is levied on the value of a person’s estate at death and on lifetime transfers into trusts, with a standard rate of 40% on amounts exceeding any available nil rate bands. APR and BPR are essential reliefs that allow farmers and business owners to shield their business assets from this IHT charge by up to 100% of their value.

The new rules will limit the value of APR and BPR that can be claimed from 6 April 2026. From that date, each individual will have a £1 million combined allowance for assets qualifying for APR and BPR at 100%. Any value exceeding the £1 million allowance will only benefit from a 50% relief.

As an anti-forestalling measure, lifetime gifts made on or after 30 October 2024, where the donor dies on or after 6 April 2026, will be subject to the new rules. Similar caps on the reliefs that can be claimed for trusts will also apply.

A critical question raised by the Budget announcement was whether the new rules would limit the availability of APR and BPR for assets placed into trusts after 30 October 2024 but before 6 April 2026 (the transitional period). Most lifetime transfers into trust incur an immediate IHT ‘entry charge’ of 20% on the value transferred over the nil rate band amount (increased to 40% if the donor dies within seven years of the transfer) if no reliefs apply.

The Budget announced that the new rules would apply to lifetime trusts from 6 April 2026, but did not state whether the restrictions would apply to the entry charge on trusts established in the transitional period. We have eagerly awaited clarification on this point in the consultation, as if APR and BPR can no longer be claimed at 100% beyond £1 million, then high-value business owners have already lost the ability to transfer their assets into trust without incurring an immediate IHT charge.

Today’s consultation brings good news. It confirms there is indeed time to ‘bank’ the reliefs at 100% before 6 April 2026, stating that the £1 million allowance will not apply to entry charges on qualifying agricultural and business property during the transitional period, provided the donor lives for seven years after the transfer.

We are preparing a more detailed update on the impact of the new rules and the planning opportunities available during the transitional period.

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