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Key Inheritance Tax Reforms for Farmers, Landowners, and Business Owners
04 Nov 2024
The Autumn Budget 2024 brings notable reforms to many business owners to include those in the farming industry, particularly regarding Inheritance Tax reliefs (IHT) for individuals with interests in agricultural and business assets. Here’s a summary of the main changes to IHT reliefs and their potential impact:
Expanding Agricultural Property Relief to Environmental Land
It has been confirmed that as of April 2025, land used in government-backed environmental schemes, such as conservation and regenerative agriculture, will now qualify for Agricultural Property Relief (APR). This encourages eco-friendly practices, aligning with the UK’s broader environmental goals and providing tax advantages for sustainable land management, but the Budget changes noted below may impact the take up.
Caps on Inheritance Tax Relief
Subject to consultation, starting in April 2026, the Autumn Budget introduces a cap on the 100% relief under APR and Business Property Relief (BPR), which previously provided total relief from inheritance tax on qualifying assets.
Now, 100% relief will be limited to the first £1 million of an estate’s agricultural and business assets, with interests in such assets which exceed this threshold receiving 50% relief. The remaining 50% will be subject to IHT at 40%. This IHT charge may potentially be spread over 10 years.
Reduced Relief on Unlisted Shares
Subject to consultation, starting in April 2026, the Budget also reduces inheritance tax relief on investments in company shares (not listed companies), allowing only 50% BPR for these investments, rather than current rate of 100% BPR. This change is again significant for all business owners and business investors.
Inheritance Tax on Pension Funds
The utilisation of pension funds has long been an effective retirement, succession, estate and IHT planning option, with flexible drawdown and death benefits passing IHT free. This will no longer be the case from 6 April 2027. When a pension scheme member dies with unused funds or without having accessed all of their pension entitlements, those unused funds and death benefits will be treated as being part of that person’s estate and may be liable to IHT.
Implications for Farmers, Landowners, and Investors
The government strategy is to collect more tax and shift wealth. There will be more business owners, land owners and farmers facing IHT liabilities in the future.
The new policies mark a significant shift in how the agricultural sector will approach property ownership, inheritance and tax planning.
We agree with the CLA and NFU that these changes will impact more farmers and landowners than the government has suggested.
Investors in AIM shares will also experience changes as BPR eligibility is adjusted, likely impacting those who use AIM investments for tax-efficient estate planning.
Preparing for the Future
We suggest all those in business and agriculture lobby against this threshold of £1m during the consultation, which does not recognise the significant value of investment needed by entrepreneurs to operate businesses and farms in this country (efficiently with enhanced productivity) and the significant impact this will have on businesses and the farming industry specifically.
To mitigate the impact of the reduced IHT reliefs under these reforms, it is exceptionally important to review long-term succession planning, business structure, property ownership and Wills in lifetime.
The £1m allowance is not transferable between spouses (unlike the Nil Rate Band) so married couples need to review asset ownership and wills to utilise this, but if structured correctly, a couple may still hold £3m of assets before IHT may bite.
It is important to consider lifetime gifts and review business structure and property ownership planning to ensure you still qualify for 50% relief on the maximum assets.
The Balfour Matrix can still reduce IHT exposure from 40% to 20% for partnership assets for Individuals (or from 6% to 3% for Trustees) if structured correctly.
For many in agriculture, these reforms signal the need to engage with their tax and estate planning experts to navigate these reforms and adapt their strategies.
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