Changes announced below are accurate as of 13/11/2024.
Changes to APR / BPR
A major change to inheritance tax came in the reform of Business Property Relief and Agricultural Property Relief.
These reliefs are considered to provide significant benefit to the UK economy, by ensuring that productive UK businesses don’t have to be wound up or sold simply to fund an inheritance tax bill.
Tax relief is currently available on qualifying business and agricultural assets at up to 100% – meaning that assets such as the family business, shares in the family company, or a working farm – can often be completely protected from inheritance taxes.
However, from 6th April 2026 onward, 100% relief under Business Property Relief (BPR) and Agricultural Property Relief (or APR) will be capped at a lifetime allowance of £1 million in combined qualifying assets.
There will one lifetime allowance for individuals, and a separate lifetime allowance for relevant settled property (i.e. trusts).
Any remaining, or surplus value, in excess of the £1 million allowance, will qualify for relief at only 50% (i.e. inheritance tax will apply at 20%).
This could have significant implications for family estate planning, and business continuity more generally, if measures are not taken to plan around these changes.
What follows is our explanation of the rules as set out in the Budget and associated Policy documents. However, between now and their introduction in April 2026, this may be subject to change and clarification.
Whilst planning will be required, taxpayers are recommended not to rush into action until the position is clarified by the Government. A consultation is to be published in early 2025, following which it is hoped that these and other points will be clarified.
Individuals
From 6th April 2026, the £1 million BPR-APR lifetime allowance for individuals will be applied against the following:-
- Transfers of qualifying assets into trust
- Transfers of qualifying assets, which become taxable as they took place within 7 years of death (whether to individuals, or into trust), and
- Qualifying assets which are owned on death (i.e. the death estate)
The allowance is available on a taxpayer by taxpayer basis, equating to £2 million for a married couple. The Budget Policy Paper makes no reference to the allowances being transferable to spouses on death. This could result in the allowance being unfairly lost, if the farm or business is solely inherited by the surviving spouse.
However, in recent interviews the Chancellor has appeared to backtrack on this, suggesting that the BPR-APR lifetime allowance will be transferable. We look forward to formal clarification on this point from the Government in due course.
The Individual BPR-APR lifetime allowance will also be in addition to the existing nil rate band of £325k each, i.e. up to £1.325 million (or £2.65 million for a married couple) free from inheritance tax.
Trusts
In addition to the rules affecting individuals, the availability of Business Property Relief and Agricultural Property Relief for trusts will also be affected.
Certain trusts, known as relevant property trusts, fall outside the estate for inheritance tax purposes. As they are not subject to inheritance tax on death, as a trade off an inheritance tax cost applies every 10 years (at up to 6%) and on exit (also at up to 6%).
Many families use trust structures as long term legacy planning vehicles, to own and protect family businesses, farms and/or landed estates. Due to the availability of BPR and APR for trustees, the ongoing inheritance tax cost has been mitigated.
This may no longer be the case from 6th April 2026.
A £1 million BPR-APR lifetime allowance for settled property is to be introduced, which is separate to the £1 million BPR-APR lifetime allowance for individuals
Where individuals have set up more than one trust with qualifying business property and/or agricultural property before 30 October 2024, each trust will benefit from a £1 million allowance for 100% relief. However, where multiple trusts are established by an individual on or after 30 October 2024, the £1 million settled property allowance will be divided between the number of trusts.
It is expected that the value of BPR or APR qualifying assets within a trust, exceeding £1m (and any available nil rate band) will still benefit from tax relief at 50%. However, the position is not fully certain, as the Policy Document itself is silent on this point.
Understanding the Implications
HMRC’s Policy Paper asserts that 77% of APR claims and 87% BPR claims were of a value less that £1 million in 2021/22. If this is the case, the vast majority of family companies, businesses and farms will be unaffected by these tax changes.
However, HMRC’s figures are highly disputed.
The National Farmers’ Union has referred to the Budget as “disastrous” for family farms. Indeed, well regarded professional organisations such as the Society of Trust and Estate Practitioners take a similar view, stating “it is unrealistic to think that the average farmer will not be financially impacted by this reform”.
It is not uncommon for the family business, or farm, to vastly outweigh the value of other assets held within the death estate. It is often an illiquid asset, generating limited cash-flow. And, especially with regards to farmland, the underlying value can greatly exceed the income generated. This makes it very difficult to see where the funds to pay the inheritance bill, even at a reduced rate of 20%, would be found.
HMRC state, in the Budget Policy Paper, that inheritance tax liabilities relating to agricultural and business property can be paid in instalments over 10 years in certain circumstances.
While HMRC would typically levy an interest cost on unpaid taxes – which was raised in the Budget to Bank Rate plus 4 percentage points (currently 9%) from 6 April 2025 – the Treasury have been confirmed in a recent statement that interest will not be charged on related instalments payments.
Many stakeholders remain nonetheless concerned that it may represent an insurmountable financial burden for many family businesses and farms.
Planning Opportunities
These changes are clearly significant, and many will be required to rethink their estate planning strategy. In terms of potential solutions, or ways to adapt to these changes – assuming the rules are brought in as expected – the following options should be considered:
- Direct Gifts
Firstly, one clear way to avoid the APR-BPR restrictions from applying, is to ensure that the family farm or business does represent an asset of the death estate.
Estate planning will often make use of gifting. If this takes place 7 or more years from the date of death, it can ensure that the relevant assets do not form part of the chargeable estate. Whilst gifting the family business or farm may mean giving up ownership and control earlier than expected, in principle it need not be a bad thing.
The transactional tax implications will of course need to be considered, as a lifetime gift would ordinarily be subject to capital gains taxes. However, most businesses that qualify for APR or BPR should also qualify for s,165 Gift Relief, allowing the gift to take place without capital gains tax where the relevant conditions are met.
Care will need to be taken here. Where a transferor continues to benefit from gifted property, the Gift With Reservation rules can apply to make the gift ineffective for inheritance taxes. However, these rules can often be managed with careful planning.
- Trust Transfers
Where a gift to the next generation may be considered infeasible, or additional protective measures are required, transferring assets into trust may still be viable in the short term.
Until 6th April 2026 individuals are still able to transfer unlimited values of BPR or APR qualifying assets into trust, whilst retaining their £1 million lifetime allowance in full.
This may provide affected taxpayers with a way to reduce the estate value – in respect of qualifying shares, businesses assets or the family farm – down to the lifetime allowance, whilst continuing to exercise a degree of control as settlors and/or trustees of the trust.
Inheritance taxes may still apply at the 10 year period or on exit – if the £1 million allowance for settled property is exceeded – but this would be at a relatively manageable 3% of the excess value (i.e. 6% relieved at 50%).
Care should be taken if this strategy is to be adopted – much like direct gifts – if the transfer is made within 7 years of death, the relevant assets may still fall within the death estate.
- Life Insurance
Finally, if a lifetime gift is simply not feasible, it may instead be possible to instead seek life insurance to spread the potential inheritance tax cost over an affordable period.
This represents a summary of available options. Professional advice should be sought from your Xeinadin advisor if you may be affected by these rules.
AIM Listed Shares
Finally – in addition to the changes to general qualifying business property – the Government will also reduce the rate of BPR available for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM shares.
In effect, these types of assets will not qualify for the BPR-APR lifetime allowance, and will instead be relieved at only 50% in all circumstances.
Many people will have built their inheritance tax planning strategies around investing in AIM shares – if so, these plans should be reconsidered as a result of these significant changes. We recommend speaking to a professional advisor if you are impacted.
If you would like to find out more about this area, and how we may be of support, please get in touch with your local Xeinadin advisor.
Written by Adam Owens CTA, Tax Advisory Partner at Xeinadin
