Significant inheritance tax (IHT) changes are due to come in on 6 April 2026, affecting farmers and business owners operating from their premises. Before these changes come in, there can be 100% relief from IHT on such assets. With the relief restricted, valuations will be more important than ever. Given the time needed to value assets, now is the time to discuss this with clients.
What is the change?
Currently, IHT reliefs mean that assets can be passed down to the next generation (during lifetime or on death) with no IHT. From 6 April 2026, the 100% relief will be capped at £1m and the balance will only qualify for relief at 50%. This means there will be IHT on the value over £1m at the effective rate of 20%. Unlike other IHT allowances, the £1m cap on APR/BPR will not be transferable between spouses.
For example, if an individual dies with £11m of assets qualifying for IHT relief before 6 April 2026, there will be no IHT on those. Post 6 April 2026, after deducting the £1m allowance, £10m will be taxed at 20%, producing an extra tax bill of £2m. This tax can be paid in annual interest free instalments but in this example that is still an extra tax burden on a business of £200,000 per annum. A tax bill with assets which may be illiquid creates a cashflow issue.
Why do we need valuations?
Clients in this position will need valuations to assess the extent of their problem, if there is one at all – i.e. are they owners of £1m/£2m/more?
On death, HMRC will look more closely at valuations as the value will no longer be 100% free of tax.
Some lifetime gifts trigger immediate tax and so if clients are looking to make gifts to reduce IHT, valuations will be needed.
What clients can do now
It is possible for a married couple to restructure their wills to double the £1m allowance and give their combined estates an allowance of £2m.
Life insurance may also be attractive to cover the IHT exposure, at least in the short term whilst more proactive planning is being undertaken.
Planning might involve lifetime gifting to pass ownership of the assets on to the next generation now, but there are important considerations required beforehand, including:
- Asset protection – there may be concerns in passing ownership and control of the property to the intended heirs (including the risk of bankruptcy, matrimonial issues, or the heir disposing of the asset to someone outwith the family).
- Affordability – the donor cannot retain any benefit in the property for the gift to be effective for IHT purposes, so they must be able to afford to give up the assets and the associated income. If access to the asset or income is required, the donor might consider leasing the asset back from the recipient, which requires expert input from two surveyors as to what the market rent is.
- Capital gains tax – capital gains tax considerations also apply.
Asset protection might be provided by gifting assets to trust. There is a window before 6 April 2026 to move an unlimited amount in to trust without IHT. After 6 April 2026 this will be limited to £1m every 7 years.
New emphasis on valuations
Before undertaking any such succession and tax planning, clients and their advisers will need the support of valuations and for valuations to be robust in the face of what may be increasing scrutiny by HMRC.
Collaboration among clients and their surveyors and legal and tax advisers will be crucial to help them navigate the new IHT changes and plan accordingly to protect their assets for future generations. The time to have those discussions is sooner rather than later.
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