Navigating the 2024 Reforms to Agricultural Property Relief (APR) and Business Property Relief (BPR)

The Autumn Budget 2024 introduced significant reforms to APR and BPR, set to take effect in April 2026. These changes mark a major shift in how agricultural and business assets are treated for Inheritance Tax (IHT), particularly for estates exceeding £1 million. The reforms aim to balance the government's revenue needs with the preservation of family-run businesses and farms, but they introduce complexities that require strategic planning.

Rajiv Mehta

Rajiv Mehta | 9th December 2024 | 7 min read

Rajiv Mehta

Understanding the New Landscape

The Autumn Budget 2024 introduced significant reforms to APR and BPR, set to take effect in April 2026. These changes mark a major shift in how agricultural and business assets are treated for Inheritance Tax (IHT), particularly for estates exceeding £1 million. The reforms aim to balance the government's revenue needs with the preservation of family-run businesses and farms, but they introduce complexities that require strategic planning.

Key Changes

  1. Introduction of a £1 Million Cap:
    • Currently, APR and BPR offer up to 100% IHT relief with no cap. From April 2026, a £1 million limit per taxpayer will apply for combined qualifying assets.
    • Assets above this threshold will receive only 50% relief, effectively facing an IHT rate of 20%.
  2. Impact on Spouses:
    • The £1 million cap is not transferable between spouses, reducing the potential relief for married couples.
  3. Lifetime Gifts and Trusts:
    • The cap also applies to lifetime transfers and trusts, limiting relief for these arrangements.
  4. New Rules for Trustees:
    • Existing trusts retain a £1 million limit, but new trusts created after October 2024 will share the cap among multiple trusts.

Illustrative Case Study

* Scenario: Rakesh and Rinki's Farm

Before the Reforms:

Rakesh and Rinki own agricultural and business assets worth £2 million. Under the current rules, their children, Nikesh, and Rani, would inherit these assets with 100% IHT relief, avoiding any tax liability.

After the Reforms:

Post-April 2026, only the first £1 million qualifies for 100% relief. The remaining £1 million receives 50% relief, leaving £200,000 subject to IHT at 40%, resulting in an £80,000 tax bill.

Strategic Options for Rakesh and Rinki

  1. Lifetime Gifts:
    • Transferring assets to Nikesh and Rani during their lifetime could reduce the taxable estate. However, if Rakesh or Rinki pass away within seven years of the gift, the assets would revert to the estate for IHT calculations.
  2. Incorporation:
    • Converting the business into a company and transferring shares to their children may allow tax-efficient asset transfers. Shares can often be valued lower than land or property, reducing IHT exposure.
  3. Trust Planning:
    • Establishing a trust before April 2026 ensures the current rules apply. However, trusts incur periodic IHT charges, requiring a cost-benefit analysis.
  4. Insurance:
    • Taking out a life insurance policy to cover potential IHT liabilities offers a fallback, especially for high-value estates.

Comparing Scenarios

Strategy

Advantages

Challenges

Lifetime Gifts

Reduces estate size; potential CGT savings

Requires survival for seven years; GWROB rules

Incorporation

Lower share valuation; easier transfer

Complex setup; CGT on future sales

Trust Planning

Locks in current relief rules

Ongoing IHT charges; administrative burden

Insurance

Immediate liquidity for IHT

Premiums can be high for older individuals

How Financial Angels Can Help

Navigating these reforms requires expertise and forward-thinking strategies. At Financial Angels, we specialise in tax-efficient planning tailored to your unique circumstances. Whether you are restructuring business assets, considering lifetime gifts, or exploring trust options, our advisors are here to guide you every step of the way.

Contact us today to secure your financial legacy and ensure compliance with the latest tax regulations. Let us work together to minimize liabilities while safeguarding your family's future.

For more information, visit Financial Angels or call us at 0207 328 8294.

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