In brief:
- Draft legislation for the reforms to Agricultural Property Relief and Business Property Relief finally have been released but are broadly in line with proposals.
- Significant restrictions on relief from inheritance tax for agriculture and business interests will take effect from April 2026.
- There is a small window of opportunity, to review, assess the implications on your business and consider available estate planning options before April 2026.
Following lobbying from the farming and business sectors, the Government has reviewed proposed reforms to Agricultural Property Relief (APR) and Business Property Relief (BPR) and published draft legislation on 21 July 2025. Despite growing pressure from the community seeking a delay, giving time for planning and re-evaluation of the impact of these reforms, the draft legislation indicates that the changes to APR and BPR will be brought in broadly in line with proposals issued in the October 2024 budget. The key changes to UK inheritance tax due to take effect from April 2026 are:
Limitations on APR and BPR:
- The 100% relief on qualifying agricultural and business property will be capped at £1 million for individuals. Trusts will be afforded a £1million allowance if they were created before 29 October 2024. The allowance will be shared across multiple trusts if APR or BPR assets are added to trusts after that date.
- The new default rate of 50% will apply to the value of all qualifying agricultural and business assets in excess of the £1 million threshold.
- Shares traded on non-recognised stock exchanges, including AIM and certain other foreign exchanges, which used to enjoy 100% relief, will be restricted to 50% relief.
Indexation: Introduced in the draft legislation to the £1 million cap, applying to both the personal and trusts allowance, which could increase with indexation starting from 6 April 2030.
Transitional Rules: Transfers made by individuals between 30 October 2024 and 6 April 2026 are covered by transitional rules. Existing trusts have their own rules depending on the nature of the trust and whether the trust owned qualifying agricultural and/or business property before 30 October 2024. An automatic allowance will apply to pre-existing trusts with qualifying property.
Anti-Fragmentation Rules: Rules to prevent an individual from compiling multiple £1 million allowances by settling qualifying agricultural and business property into multiple existing trusts after 30 October 2024 have been published.
Instalment payments: Inheritance tax applying on qualifying business and agricultural property post April 2026 can be paid in interest-free instalments over 10 years.
Transfer between spouses: Unlike the nil rate band and residence nil rate band, unfortunately the £1 million allowance will not be transferable between spouses. Critically, if neither APR or BPR is used on the first death of a married couple or civil partners, the tax relief could be lost. It was hoped that this would have been changed when the draft legislation was published, but it did not happen.
Some solutions
Plan: Review business and farming interests, obtain up to date valuations and assess the difference in inheritance tax these rules could make to you and your business. The importance of valuations will increase significantly because of these changes. Without current values, you cannot begin to plan for the financial implications these changes will have on your business. There is a small window of opportunity for business and farm owners to review, get prepared and utilise the transitional rules, before the changes come in in April 2026.
Source liquidity: Most people with business or agricultural qualifying property would not have thought carefully about inheritance tax before. How will future inheritance tax be funded? In other countries, where business and agricultural property relief is not available, business owners look to insurance to assist as a solution. Having spoken to several insurance companies in connection with this planning, as the legislation is still in draft, there is a question for the insurers as to whether there is yet, until the new rules come into force, an insurable risk. We anticipate this could cause a rush for insurance at the beginning of 2026. Being organised will be key to ensure the policies are put in place properly, and promptly.
Action
We suggest reviewing your succession plans, including your Will, lasting powers of attorney, and any corporate governance documents. Staying organised and getting professional advice on how these changes affect your business will help keep you and your business resilient.