The Autumn 2024 Budget introduced one of the most significant changes to Inheritance Tax (“IHT”) planning in recent decades. The Government announced reforms to both Business Property Relief (“BPR”) and Agricultural Property Relief (“APR”), two valuable reliefs that have historically allowed family businesses and farming enterprises to pass from one generation to the next with little or no IHT liability.
Whilst neither relief has been abolished, the introduction of a cap on the amount of property that can qualify for 100% relief means many business owners and farming families will need to review their succession planning arrangements.
BPR and APR are longstanding reliefs contained within the Inheritance Tax regime. Their purpose has always been to prevent productive business and agricultural assets from having to be sold simply to raise funds to pay an inheritance tax bill.
Historically, qualifying assets could receive up to 100% relief from IHT, meaning they could be transferred during lifetime or on death without creating a tax charge. Importantly, there was no upper financial limit on the amount of relief available.
For many years these reliefs have formed the cornerstone of succession planning for family-owned businesses and farms.
The most significant change is the replacement of unlimited 100% relief with a capped regime. Under the new rules, individuals can benefit from 100% relief on up to £2.5 million of qualifying business and agricultural assets. Any unused allowance can potentially be transferred between spouses or civil partners, meaning married couples could benefit from relief on up to £5 million of qualifying assets. Assets exceeding this threshold will generate an inheritance tax liability where none previously existed.
The reforms to BPR and APR are likely to have the greatest impact on families whose wealth is tied up in business or agricultural assets like land, buildings, equipment or shares rather than readily available cash. This may require beneficiaries to explore a range of options to fund any tax liability, including using cash reserves, arranging borrowing facilities, selling assets, or reviewing existing ownership and succession structures. For farming families in particular, concerns have been raised that the sale of land or other farming assets could disrupt long-established succession plans and affect the long-term viability of some family farms.
We understand the reforms to BPR and APR represent a significant change to inheritance tax planning. While generous reliefs remain available, business owners and farming families should review their succession plans to understand any potential tax exposure and ensure assets can continue to pass efficiently to future generations. Our experts in the Succession team at Whitehead Monckton are here to offer guidance and advice on how best to tackle these changes and protect your farms and businesses.
