Autumn Budget 2024: Agricultural Property Relief and Business Property Relief

In the Autumn Budget, the Government announced that it is going to reform Agricultural Property Relief (APR) and Business Property Relief (BPR) from 6 April 2026. These are critical tax reliefs for Landed Estates and the impact of these changes should not be underestimated.

On a lifetime transfer or on death, or on transfers out of trust, Inheritance Tax (IHT) is charged.  The lifetime rate is 20% (unless the transfer is potentially exempt, for example, a gift to an individual) and the death rate is 40%.  Both rates are subject to the available nil-rate band and various reliefs, notably APR and BPR.

In respect of transfers of agricultural property, where it was used for the purposes of agriculture and held for the required period it benefitted from 100% relief. If it was subject to a pre-1995 Agricultural Holdings Act tenancy the rate was reduced to 50%.  In respect of transfers of business property, where it had been owned for two years it would also qualify for 100% relief. A reduced rate of 50% was available for transfers of control holdings of quoted shares as well as assets used in – but not owned by – a trading business.

For Landed Estates, APR and BPR have always gone hand in hand.  BPR has often been used to ‘top up’ APR to the extent that the value of property exceeded its agricultural value or in sheltering investment assets used in a composite business which is mainly trading. This is known as Balfour planning.

Whilst there have been no technical changes to the tests for APR and BPR, the available relief has been significantly curtailed.

The key changes which will take effect from 6 April 2026 are:

• 100% relief will be limited to the first £1 million of combined agricultural and business assets for every person or pre-existing trust. Any agricultural or business assets above that threshold will be subject to IHT but at a discounted 50% rate. In other words, a rate of 20% IHT on death (reduced from 40%), and a maximum rate of 3% IHT for ten yearly and exit charges from trusts (reduced from 6%).
• The £1 million of relief will be applied proportionally between agricultural and business property where the total value of the qualifying property is more than £1 million.
• Assets that already qualify for 50% relief (under the old regime) will not use up the £1 million allowance. This includes AIM listed (or other unlisted) shares where BPR is to be reduced from 100% to 50% with immediate effect.
• The £1 million allowance is not transferable between spouses. Careful planning will therefore be needed to ensure that no allowance is wasted.
• The allowance will apply to lifetime transfers (i.e. gifts or transfers into trust) or transfers on death. We do not yet know if it will refresh in the same way as the nil rate band.
• The allowance will be available to trustees, although trusts created by the same settlor after 30 October 2024 will share an allowance between them. Trusts created before this date will each have their own £1 million allowance.
• More detail is expected from the Government in early 2025 in respect of how the new legislation will apply to trusts.
• The Government has confirmed that it will extend the scope of APR to land managed under an environmental agreement with an approved body from 6 April 2025.

The Government has introduced anti-forestalling measures whereby transfers made on or after 30 October 2024 where the transferor dies within seven years and after 6 April 2026 will be caught by the new regime.

Clearly, these announcements will affect and concern many Landed Estates and we await the detailed legislation to understand precisely what the impact will be.  However, on the information provided so far, there is scope for creative planning to mitigate the tax charge, consolidate liquidity to meet any charges and/or insure against that risk. Seeking considered tax advice in a timely manner has never been more important for our Landed Estates. Please contact a member of the Tax, Trusts & Succession team for more information and formal advice.