The recent reforms to Agricultural Property Relief (“APR”) announced in the October 2024 Budget have brought major changes to the relief available for farmers, whether on lifetime gifts or, more commonly, on death. These reforms prompted significant concern among farmers and farming groups such as the National Farmers’ Union, leading to demonstrations against the proposals.
Whilst farmers have received much of the publicity, the changes also affect business owners and the relief available to them through Business Property Relief (“BPR”).
With 100% relief for APR and BPR having been available since 1992, its availability had become the norm. The proposal to cap the 100% relief at £1 million of value, with anything above that receiving only 50% relief, was therefore a significant concern and had the potential to leave some smaller farmers and business owners with sizeable inheritance tax liabilities.
Even with the option to pay some or all of the tax in ten instalments over ten years, many were worried about how such liabilities could realistically be met. The value of a farm is often tied up in land and buildings, leaving limited liquidity. Likewise, a business owner’s wealth is frequently tied up in their business, with only modest additional assets. How, then, was the tax to be paid? A farmer might sell assets such as land, reducing the scale of their operation. A business owner, however, may find the saleability of business assets far more challenging.
There was also no provision for any unused £1 million allowance to be transferred between spouses or civil partners on the first death — a further departure from what has become standard practice since the introduction of transferable allowances in 2007.
With these changes due to apply to transfers after 6 April 2026 (and, in certain circumstances, to transfers after Budget Day 2025), it is easy to understand the relief prompted by the government press release issued on 23 December.
The announcement confirmed both an increase in the threshold for 100% relief from £1 million to £2.5 million, and the introduction of transferability of unused allowances between spouses and civil partners. As a result, couples may pass on up to £5 million of qualifying agricultural or business property before an inheritance tax charge arises.
In its own press release, the government acknowledged that the number of estates affected by the reforms after April this year will fall from 375 to 185 in the 2026/27 tax year.
Succession planning remains vitally important, particularly to ensure full use is made of the available allowances. Our tax, trusts, wills and probate team are well versed in advising on these matters. Please contact the team for specific advice.
As a final note, the changes introduced in the 2024 Budget restricting BPR to 50% on AIM shares and AIM portfolios held for inheritance tax purposes remain unchanged. This is a separate provision from those outlined above.
This article is intended only as a summary and does not constitute specific legal advice.
