The recent proposals announced in the Autumn Budget 2024 regarding Inheritance Tax (IHT) could have significant implications for farmers, business owners, and individuals with substantial pension funds or international ties.
With changes to Agricultural Property Relief (APR) and Business Property Relief (BPR), alongside the inclusion of pensions in IHT calculations and a shift in rules for non-UK domiciled individuals, the landscape of inheritance planning is set to change.
These adjustments could potentially increase the tax burden on estates that were previously sheltered from IHT, making it crucial for affected individuals to understand the upcoming changes and plan accordingly.
What are the main changes to Inheritance Tax (IHT) introduced in the Autumn Budget 2024?
- A restriction of Agricultural Property Relief (APR) and Business Property Relief (BPR) to one million pounds,
- A restriction of BPR in connection with Alternative Investment Market (AIM) Shares and Investments from 100% to 50%,
- Unused pensions to come within your IHT calculations, and
- A change to the IHT rules in connection with non-UK domiciled individuals.
What are the APR/BPR changes?
- Currently APR and BPR offer a very valuable shelter from IHT, with relief being available at a rate of 100% or 50%, depending on the type of qualifying asset held. In each case the relief is unlimited.
- From 6 April 2026, the availability of 100% APR and BPR will be capped at a total of £1m (but see below for details of changes specific to Alternative Investment Market (AIM) shares). For taxpayers with qualifying agricultural or business assets which exceed this amount, the rate of relief will reduce to 50%, so that the surplus value will be subject to IHT at 20%.
What will be the impact of the APR/BPR changes?
- This introduction of the £1m cap will have a significant impact on the estates of farmers and other business owners, but will also have consequences for lifetime gifts of agricultural and business assets, including gifts into trusts, as these are also within the scope of IHT.
Is a million pounds not a generous relief?
- A £1m cap on 100% relief may sound generous to anyone outside the farming and business communities, but agricultural land values have increased significantly in recent years, and when you add the value of plant and machinery, crops and livestock to the equation, even farmers with modest businesses may find themselves breaching the threshold.
- Many farmers and the likes of the National Farmers’ Union are involved in active protests against the changes, pointing out that they will impact the future viability of their businesses, but it seems that the Government is intent on pushing ahead with them.
What should farm and business owning clients do just now?
- Our advice to all our farm and other business owning clients is to speak to their usual contacts here as soon as possible for tailored expert advice about what they can do to prepare for these changes.
What were the changes in connection with AIM shares and investments?
- From April 2026, AIM shares will only receive relief at a rate of 50%, regardless of their value. Currently they benefit from 100% BPR, and with many investment houses offering packaged AIM share portfolios, they have been a popular and relatively straightforward way of securing an IHT shelter for individual investors facing a significant IHT exposure.
What were the changes in connection with pensions?
- Most pension arrangements will be caught in the IHT net from 6 April 2027 onwards.
- At present, the majority of pensions fall outside the scope of IHT, offering those with other income streams and capital the possibility of preserving their pension funds to pass on to their families, whilst mitigating their IHT exposure by spending down their other income and capital. Taxpayers have also been encouraged by successive governments to save for their old age through the provision of income tax relief on contributions to qualifying schemes.
- The IHT changes will create new tax exposures for many people sitting on significant pension funds, and will also make the administration of pensions and estates far more complex than before.
- Again, it will be critical to get the right advice as to what can be done to address these challenges.
What were the changes in connection with domicile?
- From 6 April 2025, the current domicile-based IHT regime will be replaced with a new residence-based IHT regime, potentially exposing the worldwide asset base of many of those living in the UK (but considering themselves domiciled elsewhere) into charge.
- At the moment it is only the UK sited assets of non UK domiciled persons that are within the IHT net.
When are the changes due to come in?
- 6 April 2025- the changes relating to non-UK domiciled individuals.
- 6 April 2026- the changes in connection with the APR and BPR cap of one million pounds.
- 6 April 2026- the reduction in BPR for AIM shares.
- 6 April 2027- the inclusion of pension schemes in the IHT calculation.
Where can I get more help?
If you are impacted by any of these changes, we will be publishing advice to help you navigate them as more information becomes available.
As these proposed changes come into effect between 2025 and 2027, it's essential to begin planning now to minimise the impact on your estate. Our team of IHT specialists are ready to provide expert advice tailored to your unique situation.
Don’t wait - contact us today on 03330 430 150 to schedule an appointment to ensure you're fully prepared for these upcoming changes.
