The new Chancellor delivered her first Budget on 30 October 2024 with some shock changes in respect of APR and BPR to be effective from April 2026, whilst also increasing other taxes and national insurance to bring in around £40 billion to cover the alleged £22 billion “blackhole” and other increases in public expenditure.
The previous rules
Before the changes, the agricultural value of qualifying agricultural property (such as agricultural land and buildings) and the market value of qualifying business property (such as plant and machinery as well as stock) qualified for 100% relief from inheritance tax after two years ownership and on: a) the passing of a farmer; or b) the ten-year anniversary of certain trusts.
Where qualifying businesses also held investments (such as let cottages), then the value of these assets also qualified for 100% BPR relief within the value of the qualifying business.
Certain qualifying agricultural let land also qualified for 100% APR in respect of its agricultural value once it was used for agricultural purposes for more than seven years (or at the rate of 50% for land let under a pre-September 1995 lease and with no right to vacant possession within 24 months).
What has changed
The definition and tests of whether agricultural property and business property are qualifying property for APR and BPR purposes (beyond confirming that land used for environmental land management purposes will qualify for APR from 6 April 2025) are unchanged, but the rate of relief will change with effect from April 2026 whereby:
- The first £1 million of value will qualify for 100% APR / BPR; and
- Any value above the initial £1 million of value will qualify for 50% APR / BPR.
The £1 million allowance is per individual, insofar as husband and wives each have their own £1 million allowance available. Any unused £1 million allowance is not transferable to surviving spouses.
Anti-forestalling measures have also been proposed in that lifetime gifts made on or after 30 October 2024 will be charged to inheritance tax under the new rules where the transferor passes away after 5 April 2026 and within seven years of the gift.
Smaller farms may theoretically not be charged to IHT if the value of the farmer(s) estate is within the available BPR / APR £1 million allowance, £325,000 IHT-free nil rate band and the £175,000 IHT-free residence nil rate band. The latter of which may be subject to restriction.
Trustees in respect of their ten-year anniversary events will also be affected by the same changes. Whilst trusts established before 30 October will qualify for the £1 million allowance, rules will apply to split the £1 million allowance between multiple trusts established after 30 October 2024.
Worked example for a sole trader farmer
Assuming a sole trader farms a farming business worth £10 million (including agricultural land and buildings, plant and machinery, stock and other business assets), the inheritance tax exposure of their estate of their business (ignoring the IHT-free nil rate band) will increase from £nil to £1.8 million depending on whether they pass away before or after April 2026 as set out below:
| Before April 2026 | After April 2026 | ||
| Value of business | £10,000,000 | £10,000,000 | |
| £10,000,000 x 100% relief | -£10,000,000 | ||
| £1 million x 100% relief | -£1,000,000 | ||
| £9 million x 50% relief | -£4,500,000 | ||
| Taxable value of business | £0 | £4,500,000 | |
| Inheritance tax x 40% | 0 | £1,800,000 |
Whilst options in relation to funding the inheritance tax exposure are available, clearly this is a significant tax cost of bequeathing a farming business after April 2026.
If the same £10 million farming business was held in partnership between husband and wives, then each partner (and any other partners) would have a £1 million 100% allowance.
Worked example for a land holding relevant property trusts
If a family trust held £5 million of agricultural land and buildings which currently qualifies for 100% APR (and which represented its agricultural value), the inheritance tax exposure of the trustees would increase from £nil to £100,500 depending on whether the next ten-year anniversary (and each anniversary thereafter) arises after April 2026 as set out below:
| Before April 2026 | After April 2026 | ||
| Value of agricultural land | £5,000,000 | £5,000,000 | |
| £5,000,000 x 100% relief | -£5,000,000 | ||
| £1 million x 100% relief | -£1,000,000 | ||
| £4 million x 50% relief | -£2,000,000 | ||
| Taxable value of business | £0 | £2,000,000 | |
| Nil rate band | -£325,000 | -£325,000 | |
| Taxable value of trust | £0 | £1,675,000 | |
| Inheritance tax x 6% | 0 | £100,500 |
Where trusts hold land in a qualifying life interest trust, the value of trust assets will continue to be form part of the estate of the beneficiaries and will be charged to inheritance tax as set out in the example above for a sole trader farmer.
