The announcement by the Government in the Autumn 2024 Budget, of changes to how Agricultural Property Relief (“APR”) and Business Property Relief (“BPR”) work for Inheritance Tax (“IHT”) purposes, has been the subject of extensive commentary. Following the publication of the draft Finance Bill 2025-2026, we look at the detail of the changes that the Government is proposing, some confirmations of what was expected and some changes.
What is changing?
Many of the proposed changes to APR and BPR that we reported on last year have now been committed to draft legislation. If you own APR and / or BPR qualifying assets, the point to note is that from 6 April 2026, based on the draft legislation, the rules will change:
- For an individual most qualifying assets worth up to £1 million (the “Allowance”) will benefit from 100% relief from IHT on death. However, to the extent that you were to die owning assets worth more than that amount, the balance will only benefit from 50% relief from IHT.
- If you were to die owning qualifying assets in the form of listed shares but which are not listed on a recognised stock exchange e.g. listed on the Alternative Investment Market, those assets only benefit from 50% relief from IHT. The same applies for qualifying assets which are shares listed on a foreign exchange which is not a recognised stock exchange.
How does the Allowance work?
The Allowance shields up to £1 million of qualifying assets from IHT. There is scope for the Allowance to be used in lifetime to transfer assets out of your estate; The Allowance will be used up on a cumulative, strictly chronological basis; and it has been confirmed that transfers will pass out of account for this cumulative process after seven years. So lifetime transfers utilising the Allowance within the seven years before death will mean that any qualifying assets remaining in your estate may become subject to IHT at 50% of the full rate.
Furthermore there is scope in the draft legislation for the amount of the Allowance to be increased by the Government in the future, subject to the satisfaction of certain conditions.
What does this mean for trusts?
Trusts, like individuals, can and do hold qualifying assets under the existing rules. The draft legislation takes account of this. Where a trust is a ‘relevant property trust’ and holds qualifying assets, the trust will benefit from a trust allowance for IHT purposes: up to £1 million worth of qualifying assets will receive 100% relief from IHT (the “Trust Allowance”), with the balance of value of qualifying assets only receiving 50% relief from the normal rates of IHT which would apply for the charge which arises every ten years on such trusts; and on value exiting from such trusts.
It is important not to be confused by the similar terminology. The Trust Allowance is different from the Allowance – it relates to the qualifying assets held in a trust. In short, under the proposed changes to take effect from 6 April 2026, a trust holding qualifying assets may become subject to IHT for the first time ever, and may need to continue to pay IHT at key points during its administration.
The draft legislation brings confirmation that it will not be possible for the same settlor to create multiple trusts after Budget Day 2024 and have each of them benefit from its own Trust Allowance. But trusts created before then which contain the right type of property can each have a separate Trust Allowance. Furthermore, the Government has decided not to proceed with a proposed complex restriction on the valuation of property within trusts created by the same settlor, which means that the splitting of shareholdings may be worth considering in some cases.
What does this mean for me?
If you own qualifying assets and the changes described above come into force in their current form, there is a distinct risk that more of them could become subject to IHT on your death, very much depending on the exact make-up of your estate.
If you are looking at your affairs and trying to understand what to do, the key message is not to panic, but equally not to leave things too late. While the Government’s proposals do represent a significant departure from the existing rules for APR and BPR, there remain extensive opportunities in most cases to reorganise your affairs in a way which continues to achieve your objectives.
But the position is more complex than it was; there are distinct traps as well as opportunities (notably on timing). Particularly for those who wish to utilise trusts in their estate planning (which perhaps is now a greater number than before these changes), action before the new rules come fully into effect on 6 April 2026 may well be extremely desirable.
Brodies has both breadth and depth of experience of advising on IHT planning, particularly where business and agricultural assets are concerned. Our corporate, rural and estate planning teams regularly work together to provide a tailored solution to clients, and will be able to help you adjust to the changing legal landscape.
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