Inheritance tax changes to business and agricultural assets – what should you be considering?

The change in Business Property Relief and Agricultural Property Relief announced on 30th October 2024 has resulted in a lot of discussions in the business community.  For a lot of business owners, there has been historically a reliance on the reliefs being available to help with succession planning, whether during their lifetime or on death.

Under the current rules, not all agricultural or business property will qualify for 100% reliefs, however where structured correctly it would likely be possible that a significant amount of value could, with minimal assets being subject to relief at only 50%. The changes proposed will see this shift with more value being subject to an 50% relief, an effective 20% Inheritance Tax rate, and only £1 million of combined qualifying business and agricultural value being subject to 100% relief.

Looking at the detail we do know:

• We understand that the £1 million cap on 100% relief will die on the death of an individual.   Initially therefore you should be thinking about the viability of transferring qualifying assets to your spouse or civil partner where they are not using their £1 million allowance.  Such transfers should not result in any tax being due as they are exempt transfers for Inheritance Tax (“IHT”) and Capital Gains Tax (“CGT”) where the couple are living together.   The 2 year qualifying period for either Inheritance Tax reliefs will restart following the transfer and for this reason, coupled with more commercial considerations, this type of planning may not be suitable for all families, potentially resulting in a higher overall tax charge for the family.
• Whereas generations of families have often left the ownership of a business in their names until death, more active lifetime transfers may be preferred going forwards.  We understand the £1m cap on 100% reliefs will be re-established should you survive a qualifying direct gift by 7 years.  Gifts into trust of qualifying assets however will likely use the donor’s lifetime allowance.  For most gifts of this type, it will be possible to defer the capital gain by claiming holdover relief meaning there is no upfront tax cost.  However, by doing this you are potentially increasing the CGT liabilities of the family should the asset be later sold, due to the loss of a CGT rebasing should it be held on your death.

Non-tax implications and IHT liabilities

You also need to be considering the non-tax implications of any lifetime gifting.  Asset protection is a topic we discuss a lot of with our clients.  By transferring assets direct you need to ensure there are sufficient provisions in place to protect the value of the assets from divorce, bankruptcy etc.  should this be a concern.  This may not be possible and therefore a balance between the potential risk of the asset being made available to others compared with the increased IHT liabilities needs to be considered.  Transferring of property could result in a Stamp Duty Land Tax charge, especially where there is debt secured on the property.  Any lifetime gifting therefore needs to be mindful of this alongside the other points mentioned above.

Insuring against the increased IHT liabilities may be something you wish to consider.  This maybe for any potential IHT payable on the gift itself, often taken out in the form of term assurance, or more general life insurance.  Both of these come with a cost which needs to be considered alongside the wider tax planning and discussions with an IFA.

Wills and estate planning

Reviewing and updating your Will is likely to be an important part of your overall planning.  The use of a Nil Rate Band Trust was something we have seen phased out over the years due to the availability of a Transferrable Nil Rate Band.  Utilising a similar provision to protect the £1 million cap may become appropriate to your circumstances and something you should discuss as part of the wider Estate planning discussions.

The consultation is due to be released in January 2025 which will provide greater certainty of the proposed changes coming into effect from April 2026.   Ahead of these starting conversations on what options may be available to fit with your family’s needs will be important.