Background
The Government has recently published draft legislation confirming that the changes to Inheritance Tax (IHT) Business Property Relief (BPR) and Agricultural Property Relief (APR) announce in the Autumn 2024 Budget are to proceed with effect from 6 April 2026, largely as previously announced.
Whilst there is a lot of detail in the draft legislation, it has confirmed that the rate of relief on assets which currently qualify for 100% BPR or APR will be reduced to 50%, over and above the £1 million allowance. One of the changes that has been included is that the allowance will remain fixed at £1 million up to and including the 2029/30 tax year, when it will then increase in line with the Consumer Price Index (CPI). However, it has been confirmed that as originally announced, the allowance will not, to the extent unutilised, be transferrable to a spouse or civil partner.
Detail
From 6 April 2026, the first £1million of combined agricultural and business property will continue to receive 100% relief, but as previously announced in the Autumn Budget the rate of relief on assets which currently qualify for 100% BPR or APR will be reduced to 50%, over and above this first £1 million. The rate of relief on shares listed other than on a ‘recognised stock exchange’ will also be reduced from 100% to 50%. This includes shares listed on the Alternative Investment Market (AIM).
The allowance for 100% BPR and APR will remain fixed at £1 million up to and including the 2029/30 tax year and then from 6 April 2030 will be indexed in line with the CPI. One of the main points confirmed is that as originally announced, whilst each individual will have a £1m allowance, the allowance will not, to the extent unutilised, be transferrable to a spouse or civil partner. Accordingly careful planning in passing on a business will be even more relevant.
Lifetime planning actions such as gifting will now be an important consideration for business owners. The spousal exemption remains unchanged, so assets can pass to a UK, long-term resident spouse free of IHT during lifetime (or on death). Alternatively gifting to other family members may be beneficial subject to the particular circumstances of the case.
Transitional rules will apply for gifts made from 30 October 2024 (the date of the Autumn Budget) and before 6 April 2026. These are complex, and those considering making gifts during this period will need to understand the different future tax outcomes that may arise as a result.
Transferring business assets to a spouse will open up the possibility of having two £1 million allowances rather than simply one where assets are held in a sole name. This can therefore, in the right circumstances, mitigate the effect of being unable to transfer the £1m allowance itself.
The option to pay IHT by equal annual instalments over ten years, interest-free, will continue to be available whenever qualifying agricultural and business property is liable to IHT, for example on lifetime and death tax, ten-year charges for trusts and trust exit charges. Whilst this is good news, there may still be situations where business assets may need to be sold to finance the instalment payments.
There are also changes to IHT which will impact trusts and these are largely as previously announced in the Autumn Budget.
If you have any concerns regarding BPR or APR, or would like any advice on how any of the points raised above could impact you, or alternatively would like to discuss any of the issues above then please contact our Tax Director, Jenny Marks.
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