Inheritance Tax Business and Agricultural Relief Changes: What You Need to Know

The Government’s Autumn Budget 2024 introduced major reforms to Inheritance Tax (IHT) reliefs for business and agricultural property. Effective from 6 April 2026, these changes are set to impact landowners, business owners, and estate planners across the UK.

The Current Landscape

Inheritance Tax is charged at 40% on estates exceeding the £325,000 nil-rate band. Reliefs such as Agricultural Property Relief (APR) and Business Property Relief (BPR) currently allow up to 100% exemption for qualifying assets—without an upper limit.

What’s Changing from April 2026?

Introduction of a £1 Million Cap

From April 2026:

• 100% relief will apply only up to a combined £1 million of APR and BPR qualifying assets.

• 50% relief (i.e. 20% effective tax rate) will apply to any value above this cap.

• AIM shares will no longer qualify for full relief—only 50%, with no access to the £1 million cap.

How the New Allowance Works

• The £1 million APR/BPR cap is an individual lifetime allowance.

• It cannot be transferred between spouses or civil partners.

• This is unlike the nil-rate band, which is transferrable on death between married couples.

Implications for Married Couples

This non-transferability has significant planning consequences:

• Couples with qualifying assets between £1 million and £2 million risk incurring up to £200,000 in avoidable IHT.

• This could happen if wills direct those assets to the surviving spouse, leaving only one £1 million cap available on second death.

Planning Tip:

Consider leaving qualifying APR/BPR assets directly to children or other beneficiaries on first death—rather than to the spouse—where appropriate.

Lifetime Transfers and Transition Period

• Lifetime transfers made on or after 30 October 2024 will fall under the new rules if the donor dies on or after 6 April 2026.

• Gifts made more than 7 years before death can still escape IHT.

• Taper relief may reduce IHT on gifts made at least 3 years before death.

Trust Planning Considerations

Existing Trusts

• Property settled into trust before 30 October 2024 will fall into the new regime at the next 10-year anniversary after 6 April 2026.

New Trusts

• For trusts set up after 29 October 2024, the £1 million APR/BPR cap will apply across all trusts created by the same settlor.

• This closes down the strategy of multiple trust planning to multiply reliefs.

Trust Exits and Charges

• The £1 million allowance will apply to property exits from trusts, not just new settlements.

Extension to Environmental Land

From April 2025, APR will be extended to include land managed under an environmental agreement with the UK government or public bodies.

Who Will Be Affected?

Government data shows:

• In 2021/22, 1,730 estates claimed APR and 4,170 claimed BPR.

• Reliefs cost the Treasury around £1.7 billion.

• Around 73% of APR claims were for assets under £1 million—so the Government expects most estates to remain unaffected.

• However, for larger farms and businesses, this will represent a major shift.

Example: With farmland averaging £9,250 per acre, any farm above 50 hectares (approx. 125 acres) will exceed the new £1 million threshold.

Strategic Planning Opportunities

Lifetime Gifting

• Potentially Exempt Transfers (PETs) of qualifying assets could be highly tax-efficient.

• No IHT if the donor survives 7 years from the date of gift.

• Taper relief may reduce the tax if they survive at least 3 years.

Business Restructuring

• Reassess how business and farming assets are held.

• Holding assets in trust or in personal names may no longer be optimal.

CGT Considerations

• Gifts of trading assets may avoid capital gains tax under TCGA s165 holdover relief provisions.

Pension Changes from April 2027

From 6 April 2027, unused pension funds and death benefits will be included in the deceased’s estate for IHT purposes.

• Pension Scheme Administrators (PSAs) will need to report and settle any IHT due.

• This adds another layer of complexity to estate planning.

What You Should Do Now

With less than two years until implementation, timely action is essential.

Immediate Priorities (Before April 2026)

• Review current estate plans to assess IHT exposure.

• Re-evaluate will structures, especially for married couples.

• Consider lifetime transfers ahead of the 30 October 2024 threshold.

• Assess business and agricultural valuations to calculate potential IHT liabilities.

Medium-Term Planning

• Restructure business assets to optimise reliefs.

• Plan succession to spread reliefs across generations.

• Review trust arrangements and ensure compliance.

• Update insurance to cover potential IHT charges.

Professional Guidance is Essential

These reforms represent the most significant IHT relief changes in decades. With APR/BPR allowances, nil-rate bands, CGT, and pensions all interacting, bespoke planning is now more important than ever.

📞 Ready to Protect Your Legacy?

At LEXeFISCAL LLP, our tax specialists can:

• Help you assess the impact of the changes

• Build a bespoke plan tailored to your family and business needs

• Ensure you're fully prepared before the 2026 deadline

Schedule your free consultation at info@lexefiscal.com

Call us on 0208 092 2111

Act now—early planning could save your estate hundreds of thousands in future tax.