Tractors descending on Whitehall, Jeremy Clarkson up in arms and landowners across the country fearing for the future of farming. So, what’s it all about?
Here’s what we think farmers, landowners and business owners need to know about the substantial changes to Agricultural Property Relief (APR) and Business Property Relief (BPR), set to take effect from 6 April 2026.
What are APR and BPR?
APR and BPR are reliefs that reduce inheritance tax (IHT) on agricultural and business assets, intended to ensure that family farms can remain operational following a change of ownership. IHT is charged on transfers of value (e.g property, savings and personal belongings) at a standard rate of 40%.
- APR historically provided 100% or 50% relief on agricultural property, such as farmland or certain farm buildings, to reduce IHT on estates.
- BPR offered similar relief for business property, such as shares in a family trading business, reducing IHT on assets outside agricultural property.
What is changing from 6 April 2026?
£1 million relief cap
Following the Government’s Autumn Budget, the proposal is that only £1 million of an estate’s agricultural and business property will now qualify for 100% relief from IHT. If an estate consists of both agricultural and business assets, the £1 million cap will be divided between the two based on their value.
The Government have stated that this is expected to affect the “wealthiest 500 estates,” however the uproar from the farming community goes some way to suggest the widespread impact this cap will have. It remains to be seen if the clamour in Westminster will be enough to prevent this change.
Let’s consider an example:
A farmer owns an estate worth £8 million which contains a farm worth £6 million and a business worth £2 million. On the farmer’s death, the estate would be subject to the £1 million 100% relief as follows (for illustrative purposes, we are assuming that there is no available nil rate band):
- £750,000 relief for the farm (75% of £1 million).
- £250,000 relief for the business (25% of £1 million).
The remaining £7 million of the estate will be subject to reduced relief (see below).
50% relief beyond the £1 million cap
Once the £1 million cap is exceeded, assets will qualify for 50% relief from IHT. Assets currently receiving 50% relief will not use up or be affected by the new allowance, but any unused allowance will not be transferable between spouses and civil partners. Put simply, this results in an effective IHT rate of 20% on the value of APR qualifying assets exceeding the £1 million cap.
Using the example above, the remaining £7 million on our farmer’s estate would receive 50% relief, leaving £3.50 million taxable value, or framed differently, a 20% tax on the £7 million excess.
The inheritance tax that will be owed on the estate would be £1.4 million.
This tax can also be paid interest-free, in instalments, over a 10 period, which may help ease the financial burden farmers will now face.
Lifetime transfers and trusts
From 30 October 2024, these new caps and reliefs will also apply to lifetime transfers made within the seven years before death, if the donor dies on or after 6 April 2026. Similarly, trusts will receive 50% relief on ten-year IHT charges and any smaller charges when property exits the trust. This may mean that farmers could transfer large parts of their estate into a “discretionary” or “interest in possession” trust now without an IHT liability arising immediately, although relevant property charges will likely arise for the trustees.. The Government will publish a consultation in early 2025 on the detailed application of charges on property within trusts.
This means that if our farmer made a lifetime gift of his £6 million farm to his children today and then died two years after making the gift, the transfer would be charged to IHT, subject to the new reliefs set out above. However, if our farmer made the gift today and died on 6 April 2032 (i.e. over seven years since making the gift) there would be no IHT liability for his children.
Changes to BPR
BPR will now apply at 50% instead of 100% for shares in businesses not listed on “recognised stock exchanges,” such as AIM (Alternative Investment Market) shares.
What does this mean for the future of farming?
For farmers and business owners, these changes to APR and BPR are certainly unwelcome. There is a divide between the farming community and the Government, with farmers arguing that the high capital value of their estates is disproportionate to the low income that they generate. Their major concern is that the Government’s reduction of APR and BPR will result in land being sold piecemeal to meet the new IHT liability. This, in turn, could lead to estates becoming unviable and farmers having to sell up altogether.
It is more crucial than ever to seek advice on wealth protection and planning opportunities as early as possible. With an understanding of what an estate consists of, there are measures, such as lifetime gifts or the formation of trusts, which could help lessen the burden that these changes will bring.
Please do contact the Private Wealth & Tax team to understand the implications for you and/or your clients.
