Key changes to Agricultural Property Relief and Business Property Relief in the UK
The Autumn Budget 2024 brought significant changes to Agricultural Property Relief (APR) and Business Property Relief (BPR), impacting farmers, landowners, and business owners. These updates aim to reform inheritance tax (IHT) reliefs by introducing a £1 million cap on the value of assets eligible for full relief. The changes, scheduled to be fully implemented by April 2026, are designed to make the system fairer, focusing on small family farms while increasing tax revenues.
The changes are complex and will have a far-reaching effect for anyone whose estate includes agricultural or business property. However, Sarah Allen, Partner and specialist in estate planning for farmers and landowners at Tallents Solicitors has summarised the key points to highlight everything you need to know about these inheritance tax reforms and how you can prepare.
Sarah Allen, Head of Wills, Trust & Probate
What are Agricultural Property Relief (APR) and Business Property Relief (BPR)?
Agricultural Property Relief (APR)
Currently APR provides 100% relief from inheritance tax, designed to protect agricultural businesses and assets. It safeguards farms when they are passed on to the next generation, ensuring they can continue their operation without being burdened by significant tax liabilities. Qualifying assets include land, pasture, farm buildings, and farmhouses.
Business Property Relief (BPR)
Similarly, BPR supports businesses by reducing the IHT burden on specific assets, such as shares in trading companies, sole traders, and partnership interests. This relief makes it easier for businesses to pass to heirs without requiring the business to liquidate assets to meet tax demands.
Key changes in the Autumn Budget 2024
The Autumn Budget 2024 outlined several significant reforms to APR and BPR which will be of interest to farmers, landowners and business owners:
£1 million cap on 100% relief
From April 2026, full 100% relief will only apply to the first £1 million of combined agricultural and business property. Any assets exceeding this cap will receive only 50% relief, resulting in an effective inheritance tax rate of 20% on the remaining value.
For example, for estates worth £3 million, only £1 million would be exempt, with the remaining £2 million subject to a 20% rate, resulting in an IHT liability of £400,000.
Non-transferable allowance
Unlike other IHT reliefs, such as the nil-rate band, the £1 million APR/BPR allowance cannot be transferred between spouses. Couples will need to carefully plan asset ownership to maximise their individual allowances.
Transition period and anti-forestalling rules
These changes affect lifetime and death transfers, with new anti-forestalling provisions applying to gifts from 30 October 2024 through to 6 April 2026. This is to prevent the avoidance of the new tax rules through early transfers.
So, what are the impacts on farmers, landowners, and businesses?
Higher tax liabilities for larger estates – The £1 million cap means larger estates will face greater tax burdens.
Inheritance challenges – Farming families may now face difficulties in succession planning as the traditional guarantee of full APR often allowed smooth transfers between the generations. However, the £1 million cap now highlights the urgent need for the exploration of alternative strategies.
Encouraging diversification – With the reduction in tax relief, landowners may consider diversifying their estates into ventures such as renewable energy, commercial properties, or leisure activities.
How to prepare for the changes
To minimise the impact of these changes, Sarah recommends that farmers, landowners, and business owners should take the following steps as soon as possible:
Review succession plans – Revisit your current estate and succession plans. Ensure your strategy aligns with the new IHT rules and allows heirs to maintain family businesses or land holdings.
Maximise spousal allowances – Since the £1 million cap is non-transferable, work with professionals to optimise asset ownership between spouses for maximum tax efficiency.
Consider lifetime gifts – Making gifts during your lifetime can reduce the taxable value of your estate, but you must comply with HMRC rules, including the new anti-forestalling provisions.
Explore diversification – Consider other ways your estate could generate income and provide tax advantages, such as investing in renewable energy projects or commercial properties.
Take out IHT insurance – Insurance policies can protect heirs by covering potential IHT liabilities, ensuring your business or land stays in the family.
Establish or review trusts – Trusts may offer opportunities to shield assets from IHT. Pre-existing trusts should also be reviewed to ensure compliance with the new rules and maximise allowances.
Plan for cashflow management – Remember, IHT on property can be paid over ten years in instalments, allowing flexibility for covering liabilities without selling assets.
Why has the government made these changes?
The government has justified the reforms as measures to increase fairness and target support towards small family farms. Expected to raise £520 million annually, the new rules aim to redirect tax benefits towards smaller estates.
However, critics argue these changes disproportionately affect large, multi-generational farms that significantly contribute to the UK’s agricultural output. Concerns include the risk of forced land sales and reduced investment in agriculture, both of which may have long-term implications for rural communities.
Additional support for farmers
The government has also pledged financial support to farmers, including:
- £5 billion over two years to support food production;
- £60 million for the Farming Recovery Fund;
- £208 million for disease prevention and sustainability.
Final thoughts from Sarah
Sarah notes that the changes to Agricultural Property Relief and Business Property Relief represent a profound shift in inheritance tax planning, especially for agricultural estates and family-run businesses. Given the complexities and potential impacts of these reforms, seeking professional legal and financial advice as soon as possible is crucial.
Proper preparation can help you adapt to the new rules while safeguarding your estate and legacy. Contact Tallents Solicitors today to learn more about effectively navigating these inheritance tax reforms. Our experienced team is here to help you make informed decisions for your future and you can make a confidential appointment at one of our three offices in Newark, Southwell or Mansfield.
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Image by Siggy Nowak from Pixabay
