The Autumn Budget 2024 – Changes to inheritance tax for rural land and business owners

Rural land and business owners have long relied on generous inheritance tax (IHT) reliefs to help them successfully implement their succession plans.

Using agricultural property relief (APR) and business property relief (BPR) can help reduce or even completely remove inheritance tax on an estate, which would otherwise be taxed at up to 40% after death.

Sweeping changes to the current IHT APR/BPR regime announced in the UK Government’s Autumn Budget 2024 mean that even the best-laid plans may now require some reconsideration.

APR and BPR, introduced over 40 years ago, have been important tools in allowing family farms and estates to be passed down from generation to generation. Provided the necessary conditions were satisfied, there was no upper limit on the value that could be inherited free of IHT – avoiding the need for land to be sold to fund an IHT liability or for a business to divert funds to meet a tax bill. The reliefs combined well with the expression that ‘a farmer never retires’. This may no longer ring as true as landowners will now have to consider potential lifetime planning to ensure their succession plans are structured to minimise IHT and maximise the wealth being passed down.

People have been expecting changes to inheritance tax rules for years, but until now, no significant changes in legislation have occurred. It had been widely thought that any changes to these valuable IHT reliefs would be focused on tightening up what type of agricultural and business property would qualify for relief. Instead, the changes for landowners have focused on the value of the relief rather than what will qualify. From 6 April 2026, property qualifying for 100% APR and BPR will be subject to a £1 million combined cap, with any value more than this amount only qualifying for 50% relief. This will result in an effective IHT rate of 20% on any qualifying property valued above £1 million in the deceased’s estate.

Additionally, where spouses or civil partners both qualify for 100% APR and/or BPR, it may be possible to claim full relief on £2 million of qualifying property in total (e.g. £1 million on each death). Unfortunately, the proposed changes don’t currently allow the transfer of any of the unused £1 million of relief on the first death to the surviving spouse or civil partner. This compares unfavourably to the transferable IHT nil rate band and residence nil rate band rules. As it’s currently written, this seems to disadvantage people who are already widowed, unable to update their wills due to incapacity, or those who, for any reason, can’t easily give qualifying property as lifetime gifts.

The new rules will also apply to trusts holding assets qualifying for 100% APR/BPR. If assets qualifying for the reliefs were transferred into a trust prior to 30 October 2024, the £1 million exemption will be available in calculating future IHT charges on the trust whether on a 10-year anniversary or appointment of assets from the trust to beneficiaries. Where a settlor sets up several trusts, on or after 30 October 2024, the £1 million allowance will be divided between those trusts.

The changes are currently set out in a policy paper with the finer details only to be announced in early 2025. There will also be a period of consultation on how the new regime will apply to trusts. Any lifetime gifts of property qualifying for 100% APR or BPR made on or after 30 October 2024, where the donor dies after 5 April 2026, such that the gift is chargeable to IHT on their death, will nonetheless now be subject to the £1 million allowance.

The ability to pay liabilities relating to agricultural and business property in equal instalments over 10 years remains. This will now be interest-free if certain conditions are satisfied.

What does this mean for me?

The APR and BPR announcements in the 2024 Autumn Budget now mean it is more important than ever for farmers and landowners to review their assets and activities, and where appropriate, consider undertaking lifetime planning if this fits with their succession plans. However, it’s best to proceed with caution until more details are published on the new regime in early 2025 and to seek appropriate advice before making any lifetime gifts.

The lifetime options to consider may still include lifetime gifts to spouses and other family members and/or the use of family trusts. The capital gains tax and other tax, legal, financial and practical implications should also be considered before taking any action.

There should also be a review of the terms of your Wills to ensure they remain fit for purpose and still maximise and/or preserve the available IHT reliefs on death.

If you wish to discuss how the changes will impact you, please contact alison.pryde@andersonstrathern.co.uk,martin.campbell@andersonstrathern.co.uk or your usual Anderson Strathern contact.

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