Reforms to inheritance tax: agricultural property relief and business property relief

In the autumn 2024 budget, the government announced several reforms to agricultural property relief (“APR”) and business property relief (“BPR”) from inheritance tax. In particular:

• A £1 million allowance will apply to the combined value of property that qualifies for 100% BPR, 100% APR or both. After the £1 million allowance has been exhausted, relief will apply at a lower rate of 50% to the combined value of qualifying agricultural and business property.
• The rate of BPR available will be reduced from 100% to 50% in all circumstances for shares admitted to trading on a recognised stock exchange which are not ‘listed’.

These changes will have an impact on the inheritance tax payable by certain trusts comprising of property that qualifies for APR or BPR where the value of that property exceeds £1 million. The government has opened a consultation on how the proposed changes specifically apply to trusts.

Key aspects of the consultation

Separate allowances for individuals and trusts

Individuals will have a £1 million allowance renewing on a rolling basis every seven years, while relevant property trusts will have a £1 million allowance renewing every ten years.

Transitional provisions

Chargeable lifetime transfers (CLTs) and potentially exempt transfers (PETs) made before 30 October 2024 will not be brought into cumulation when determining the £1 million allowance for chargeable transfers of APR and BPR arising after 30 October 2024.

PETs and CLTs made between 30 October 2024 to 6 April 2026 will be subject to the new rules if the settlor dies within seven years, but after 6 April 2026. The consultation suggests that if the settlor survives seven years, then the CLT will not be brought into cumulation for the £1m allowance for future relevant property IHT charges.

If the transferor dies within seven years, and after 6 April 2026, then any transfer into the trust during the seven years before death will be subject to an IHT charge and the £1 million allowance of the settlor is used up.

Anti-fragmentation measures

To prevent the division of property across multiple trusts to exploit reliefs, rules will ensure that a single £1 million allowance applies across all trusts established by the same settlor on or after 30 October 2024.

Special provisions for certain trusts

For instance, the £1m allowance for age 18-25 trusts for bereaved young individuals will renew for each successive beneficiary when their share of the funds is distributed, to avoid the eldest sibling receiving the whole benefit.

Instalment payment options

The government proposes to extend the option to pay IHT by equal annual instalments over 10 years, interest free, to all property which is eligible for agricultural property relief or business property relief, regardless of the applicable rate of relief.

Next steps

The consultation will close on 23 April 2025 and the government is expected to publish a response to the consultation and draft legislation for further consultation later this year. The reforms are to be effective from 6 April 2026.