The 2024 Autumn Budget introduced significant reforms to Inheritance Tax (IHT), particularly relating to Agricultural Property Relief (APR) and Business Property Relief (BPR). These changes, scheduled to take effect on 6 April 2026, represent a shift from the previously uncapped regime and could materially impact succession and estate planning.
This note highlights the main legislative developments and summarises planning opportunities discussed during a recent consultation with counsel. The client in question owns 100% of a trading company and is in his mid-70s; his spouse is approximately six years younger.
Background: APR/BPR Regime Pre-Budget 2024
Before the 2024 Autumn Budget, individuals owning qualifying assets could transfer them without significant IHT concerns, thanks to full APR/BPR relief. The new framework introduces caps and conditions that necessitate proactive planning.
Key Budget 2024 Announcements
- Introduction of a £1 million Allowance
- A £1 million allowance will apply per individual to the combined value of property qualifying for 100% APR or BPR.
- After this threshold, qualifying assets will attract only 50% relief.
- Clarifications from the Spring 2025 Consultation
- The £1 million allowance is not a lifetime limit. Like the nil-rate band, it refreshes every seven years.
- Lifetime gifts of qualifying assets will not use the allowance if the donor survives the gift by seven years.
- The allowance is not transferable between spouses or civil partners.
- Trusts receiving qualifying property will also enjoy a £1 million APR/BPR relief in calculating IHT on ten-year anniversaries or exit events.
- IHT due on APR/BPR assets may be paid in ten equal, interest-free annual instalments.
Note: Although the instalment option is welcome, the estate may need to pay income tax on any income received to fund the IHT payments, reducing the net amount available.
Planning Suggestions
1. Share Transfers Between Spouses
- A long-term UK-resident shareholder (‘A’) should consider gifting qualifying shares to their long-term UK-resident spouse/civil partner (‘B’).
- After two years of ownership, ‘B’ may transfer up to £1 million of shares into trust. This process can be repeated every seven years.
- ‘A’ can carry out the same strategy independently, allowing for effective use of both £1 million allowances.
- Will Revisions
- Both spouses should revise their wills to provide for a transfer of up to £1 million of qualifying assets into a discretionary trust if they have not used their relief in the preceding seven years. This helps preserve unused APR/BPR allowances on death.
- Company Qualification Review
- Several types of assets can qualify for BPR, including unquoted shares in a trading company.
- Relief is not available if the company is wholly or mainly engaged in:
- Dealing in securities, stocks, or shares
- Dealing in land or buildings
- Making or holding investments
- It is advisable to review balance sheets and business activity to confirm BPR eligibility.
- Gifts with Reservation of Benefit
- Lifetime gifts may trigger reservation of benefit rules, especially if the donor continues to receive income (e.g. director’s fees).
- With proper structuring, this should not impede implementation of the planning strategies.
Next Steps
If any of the matters above raise questions or merit further discussion, please feel free to get in touch.
