The long-anticipated draft legislation following the Chancellor’s Autumn Budget has now been published, including detailed proposals on Business Relief (BR) and Agricultural Property Relief (APR) from Inheritance Tax (IHT).
Industry bodies had called on the Government to reconsider aspects of the proposed reforms. Suggestions included allowing the £1 million allowance to be transferable between spouses, raising the cap for full relief, or deferring any IHT charge until the business or farm is sold. These alternatives have not been adopted.
Key Updates for Farmers and Business Owners
1. No major changes to earlier proposals
The core proposal remains unchanged: individuals can claim 100% relief on the first £1 million of qualifying business or agricultural property. Any value above this threshold will attract only 50% relief.
2. No spousal transferability of the £1M cap
Unlike the inheritance tax nil-rate band and residence nil-rate band, the new £1 million relief cap cannot be transferred between spouses or civil partners. This means if one spouse does not claim it, it is lost. Careful estate planning and Will structuring will now be essential to ensure both parties fully utilise the relief available.
3. Potential for future increases
The £1 million cap may be reviewed and increased in line with the Consumer Prices Index, but not before the 2029/30 tax year, and only at the discretion of the government in power at that time.
4. 10-year interest-free instalments confirmed
The draft confirms that inheritance tax due on qualifying assets benefiting from 50% relief can be paid in 10 annual instalments, interest-free, bringing consistency with the existing rules for business and agricultural assets which do not qualify for relief.
5. Chronological application of relief
Relief will be applied in chronological order rather than at the taxpayer’s discretion. This approach could impact lifetime gifting strategies and succession planning, as the allowance will reset every seven years.
6. The proposed ‘anti-fragmentation’ rules will not apply
In its current form, the draft legislation excludes the originally proposed rules, which would have meant that property placed, by the same owner, into several different trusts would have been ‘connected’ for valuation purposes. The aim of the ‘anti-fragmentation’ rules was to stop landowners from fragmenting the ownership of their land to artificially suppress its value for tax purposes. The chronological application of the relief is now felt to be a sufficient deterrent.
What Should Farmers and Business Owners Do Now?
With the Government confirming its commitment to these changes, now is the time to take proactive steps, especially if you were waiting to see whether the proposals would be relaxed.
Tozers recommend that you consider the following:
a. Update your Will
The non-transferability of the £1 million cap makes it essential that Wills are structured properly. Without appropriate planning, one spouse’s full relief could go unused.
b. Get an accurate business or farm valuation
Sound estate planning relies on up-to-date valuations that reflect market conditions and relevant tax considerations. A valuation prepared specifically for inheritance tax purposes may differ from a commercial one, so work with your advisors to ensure it is accurate and fit for planning.
c. Assess your exposure to inheritance tax
Understand the make-up of your estate, what elements qualify for relief, and where tax liabilities may arise. Consider how these liabilities will be funded and whether current arrangements adequately protect your farm or business for the next generation.
d. Consider creating a trust before April 2026
Transferring qualifying business or agricultural assets into trust before April 2026 may avoid an immediate IHT charge and offer flexibility for succession. Trusts can provide control over future ownership while removing value from your estate. However, they come with ongoing tax and administrative responsibilities, so advice is crucial.
How Tozers Can Help
At Tozers, we work closely with farmers and business owners to navigate the complexities of succession, estate planning, and tax efficiency. Whether you’re reviewing your Will, planning for future generations, or seeking clarity on how these changes affect you, we’re here to help.
Our specialist Trust, Tax & Succession team can work through the technicalities, liaise with your accountants or land agents, and ensure you have a clear plan in place for your farm or business and your family. Please get in touch with us on enquiries@tozers.co.uk or call us on 01392 207020.
