As widely-anticipated in the press over recent weeks, the Chancellor has announced changes to the levels of Inheritance Tax (IHT) Agricultural Property Relief (APR) and Business Property Relief (BPR), which is likely to increase the IHT burden on estates which currently have significant assets that qualify for the relief(s) .
The current position of IHT, APR and BPR taxes
The existing rules are broadly, that where the qualifying conditions are met, APR and/or BPR apply at the appropriate rate on the full value of the asset. Where both reliefs apply, APR is given first, with any residual value being covered by any available BPR.
Depending on the type of agricultural asset, APR may be available at either 100% or in certain circumstances restricted to 50% on the agricultural value – this may be lower than a non-agricultural value. BPR is currently available at a rate of 100% on business interests and unquoted shares in a company and restricted to 50% primarily on assets used by a business controlled by the owner of those assets.
What is changing with IHT, APR and BPR taxes?
From 6 April 2026, a new allowance of £1 million will apply per taxpayer for the combined value of property qualifying for 100% BPR and 100% APR.
Where the qualifying conditions are met, the current rate of 100% will continue to be available on the value covered by this allowance, but any excess value will be limited to relief at 50%.
- This allowance will not be transferable between spouses on first death.
- It will be allocated against property qualifying for 100% relief first so that it is not allocated to assets that only qualify for 50% relief under the normal rules.
- Where multiple assets qualify for 100% relief, the allowance will be allocated proportionately based on value.
It was also announced from 6 April 2026, that the rate of BPR available, in respect of AIM shares and other shares not listed on a recognised stock exchange, will reduce from 100% to 50%.
As far as we are aware, there are no planned changes to the headline rates of APR and/or BPR applying to other classes of asset.
In a positive move, the government has announced that with effect from 6 April 2025, APR can apply to land managed under an environmental agreement.
What transfers will the new allowance apply to?
The allowance will be available to cover the following transfers:
- Property in the estate at death
- Lifetime transfer to individuals in the seven years prior to death that become chargeable
- Chargeable lifetime transfers where there is an immediate lifetime charge e.g. transfer of property into a relevant property trust
What about lifetime transfers prior to 6 April 2026?
The new rules will apply to lifetime transfers made on or after 30 October 2024 if the donor dies on or after 6 April 2026.
Does this impact on trusts which own assets qualifying for APR and/or BPR?
Trustees of certain trusts are liable to an IHT charge (at a rate of up to 6%) every 10 years or when assets are distributed from the trust.
APR and/or BPR can apply to minimise the impact of these charges. However, with effect from 6 April 2026, such trusts will have a lifetime allowance of £1 million which it is intended will be applied in the same way as it will be to individuals (see above).
Where the settlor has set up more than one trust qualifying for the relief before 30 October 2024, each trust will receive a £1 million allowance. However, where multiple trusts are established after 29 October 2024, the government intends to introduce legislation that will limit the total allowance amongst these trusts to £1 million in total.
What are these changes likely to mean for those affected?
Other than those estates where the value of qualifying assets is less than £1 million, the changes are likely to have a significant impact on the IHT payable.
This is not helped by the fact that the main nil rate band and residence nil rate band are being frozen until 2030, rather than 2028 as previously announced.
In addition, whilst IHT liabilities relating to assets qualifying for APR and/or BPR can generally be paid in annual instalments over 10 years, interest will apply to the deferred liability.
Contact Mercer & Hole
For such estates, it will be important to review the position once more detail is known and consider whether any planning should be undertaken. Please contact Mark Baxter or your normal Mercer & Hole contact to review your options.
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