The Government has announced an easement to planned changes to business property relief (BPR) and agricultural property relief (APR) from 6 April 2026
APR and BPR are valuable inheritance tax (IHT) reliefs that can reduce or even eliminate tax on farms and trading businesses passed on after death. They are designed to protect family-owned agricultural land and active businesses from having to be sold to pay an IHT bill.
At Autumn Budget 2024, plans were unveiled to significantly curtail APR and BPR from 6 April 2026. Under the original proposals, the 100% IHT relief currently enjoyed on unlimited business and agricultural assets would have been limited to the first £1m of assets, with the remainder attracting 50% relief. This would have resulted in an effective tax rate of 20% on assets above the threshold that would previously have been inherited tax free.
In response to strong opposition from businesses and the farming industry the Government has announced a relaxation of the plans, increasing the allowance from £1m to £2.5m of combined qualifying business and agricultural assets, with any value above £2.5m attracting relief at 50%. This follows easements announced at Budget 2025 confirming that the original £1m allowance would be transferable between spouses and civil partners.
The increase to the threshold means that a surviving spouse or civil partner will now be able to pass on up to £5m of qualifying agricultural and business assets tax-free, on top of existing nil rate bands. This will also apply to individuals who were widowed before the policy was introduced. The cap applies to the combined value of assets eligible for APR and BPR including assets in an individual’s death estate, lifetime chargeable transfers (gifts into trust) and, where the death occurs post 6 April 2026, gifts made on or after 30 October 2024.
Shares in companies not listed on recognised stock exchanges (e.g. AIM shares) will only qualify for 50% relief and so will not use the £2.5M allowance after 6 April 2026. The £2.5M allowance will refresh every 7 years for lifetime gifts but the ability for trusts to acquire the trust allowance will not refresh – it will be a single lifetime allowance that is expected to increase by CPI from April 2031.
To recap Trusts have different rules:
• Trusts in place before 30 October 2024 will have the full £2,5M allowance provided that they held APR or BPR assets on that date. They are ignored when determining the allowance for Trusts created after this date.
• Trusts established since 30 October 2024 will have a part of the full lifetime allowance (up to the maximum £2.5M) only if the settled property qualified for APR or BPR when settled into the Trust. The allowance for that Trust will be fixed at the value of the qualifying assets when they were settled and each person can only transfer, post 30 April 2024, a total of £2.5M of allowance into Trusts during their lifetime. The allowance for the Trust is automatic on a first in basis meaning the settlor cannot choose to save the allowance for a later Trust.
There is no change proposed to the replacement property rules which relax the two-year holding requirement, and the option to pay IHT by equal annual instalments over 10 years, interest free, will continue to be available to qualifying agricultural and business property.
Contact us to explore how these changes could affect your succession planning arrangements.
