The recent changes to Agricultural Property Relief and Business Property Relief that come in to affect from April 2026 will have significant impact on farmers and business owners that may previously had no Inheritance Tax (IHT) liability.
A lot of emphasis in the media has been on farmers, understandably, however it’s possible to overlook that business’ with a value in excess of £1 million will also be greatly affected by the changes coming into effect.
At present, any agricultural assets (such as land and buildings, equipment etc) and shares in unquoted trading companies qualify for 100% relief from IHT provided they have been owned for 2 years prior to the event, i.e. death.
However, from April 2026, only the first £1 million of combined agricultural and business property will get 100% relief, with any remaining value attracting 50% relief. It is important to note that this £1 million allowance is not transferable between spouses, and therefore affairs need to be structured in a way that does not waste this allowance.
The £1 million allowance does not apply to assets that automatically get 50% relief, such as land, buildings and machinery owned by the individual and used in the business they control. These assets will continue to simply get relief at 50%.
AIM (Alternative Investment Market) listed shares that previously obtained 100% Business Property Relief will now only attract 50% Business Property Relief, again this will not impact the £1 million allowance.
Transitional Rules
The Government have announced that any transfer made on or after 30 October 2024 and before 6 April 2026 will be deemed to occur during the ‘transitional period’ and will be subject to anti-forestalling rules.
For both Potentially Exempt Transfers (PETs) and Chargeable Lifetime Transfers (CLTs), the £1 million allowance will apply should the transferor die within 7 years of the gift and on or after 6 April 2026. For example, if an individual gifted £750,000 of business assets to their child on 31 May 2025 and then passed within 7 years, after 6 April 2026, the PET would be covered by the £1 million allowance, but it would mean there would only be £250,000 remaining that would get full relief in the Estate.
Impact on Trusts
Trustees of a Trust that holds agricultural or business property will also be able to claim the £1 million allowance when looking at exit or principal (10 year) charges that occur.
There are also anti-forestalling rules relating to Trusts created by the same settlor on or after 30 October 2024. In these circumstances, the £1 million allowance will be split between each Trust created, e.g. an individual creates 5 Trusts each Trust will have a £200,000 allowance.
Steps you can take
A first step for any business owner or landowner should be to obtain a valuation of their company and/or assets to extent the potential issue they may face, which is a service offered by our Corporate Finance team.
The Tax team can assist with tax planning around mitigating the impact of any future IHT liability. There are steps you can take which will depend on your individual circumstances, such as transferring assets into joint names and making separate will provisions, use of a Discretionary Trust and gifting business assets.
Contact our Tax team on 01242 776000 or tax@randall-payne.co.uk to discuss your circumstances or find out more about a company valuation.
