The long-awaited IHT consultation on the proposed reforms to agricultural and business property relief (APR and BPR) (coming in from 6 April 2026) emerged yesterday afternoon (27 February 2025). The consultation is open for two months. Although the consultation was largely as expected, there were a few clarifications and new details which Sarrah Way (Charles Russell Speechlys) discusses here.
The Good
There were a few good news items in the consultation:
1. As announced on Budget Day 2024, each individual will have a £1m allowance for claiming 100% relief. There was concern that this would be a lifetime allowance. However, the consultation explains that it will instead operate like the nil rate band and will refresh every seven years on a rolling basis.
This means that after 6 April 2026 Anthony, assuming he settled no other trusts, can settle £1.65m of 100% APR/BPR assets into trust on year one. £1m will be fully relieved. £650,000 will be covered by a mix of 50% relief and his nil rate band. After seven years, both allowances refresh and Anthony can settle a further £1.65m of 100% APR/BPR assets into trust.
2. Potentially exempt transfers – i.e. lifetime gifts to individuals – will not use the allowance if the donor has survived the gift by seven years. This is akin to how the nil rate band operates. For example, Bethany gives £1m of 100% BPR assets to her daughter and then dies eight years later. Her estate will qualify for a further £1m allowance. Had she died within seven years, the gift will use up the allowance and none would be available to her estate.
3. Interest-free instalment option payments will be extended to cover any property which qualifies for APR or BPR at whatever rate. This is welcome clarification and will cover a few more unusual situations which wouldn't otherwise qualify under the current rules. This means that IHT due on APR and BPR property can be paid in 10 annual instalments, interest-free which will be valuable for businesses and farms.
4. The new rules will not apply to distributions of 100% APR/BPR assets from relevant property regime (RPR) trusts (see 9 below) until after the first 10 year anniversary after 6 April 2026, if those assets were settled before 30 October 2024. Depending on 10 year charge dates, this potentially gives a much longer window for trustees and family members to think about bringing assets out of trust, without incurring an exit charge, if the prospect of future 10 year charges is unpalatable.
5. Due to the unclear language of the original Budget announcement, there were some initial concerns that BPR on private company shares was being reduced to 50% as part of the changes to the taxation of AIM shares. Although this was clarified informally by the Treasury in the days following the Budget, this consultation expressly confirms that private shares will continue to benefit from 100% BPR, subject to the £1m allowance.
6. For any owners of foreign shares listed on non-recognised stock exchanges, there may be more flexibility to undertake planning before 6 April 2026 because it appears that the anti-forestalling rules which will apply to other classes of APR/BPR assets won’t apply to these assets.
7. The consultation has asked for views on introducing an extension to the related property rules. The related property rules currently apply between spouses. If husband and wife own a company jointly, the company is valued as a whole and then the valuation allocated to each spouse in proportion to their interest. This approach therefore captures marriage value and prevents the imposition of discounts which would otherwise apply to part interests.
The Government is clearly concerned that there will be a growing trend towards fragmentation of 100% APR and BPR assets in order to introduce discounts and maximise £1m allowances. Therefore, in the context of trusts, they are suggesting introducing a rule that 100% APR/BPR property held by different trusts, but settled by the same settlor, is valued together.
For example, Colin might be minded to settle his valuable BPR company into five trusts before 6 April 2026. He had considered settling them into five trusts in order to maximise shareholder minority discounts. He understands that a 20% holding in his company is worth significantly less than 20% of the whole because of its lack of voting influence; his adviser has said that discounts of 60% might be available. If these related property rules are introduced, this planning will not work. The shares held across Colin’s five new trusts will be valued as a 100% holding, and that valuation will be split equally between them.
8. The Budget announced that an individual’s £1m allowance would not be transferable between spouses. In professional circles, this proposal has been widely criticised because it will drive the fragmentation of businesses and farms. If the allowance is not transferable, in order to use both allowances within a marriage, a married couple will have to carve off a proportion of their APR or BPR assets following the first of their deaths in order to use the allowance of the first spouse to die. This will create a huge compliance burden for the taxpayer and HMRC in assessing these arrangements. Unfortunately, the consultation continues to state that the allowance will not be transferable. We expect this will be a point widely criticised in the consultation responses.
9. Certain trusts are RPR trusts and suffer IHT charges every 10 years and when assets leave the trust. The calculation of RPR charges is already very complex, although can be summarised as charges of up to 6% on the 10 year anniversary and of up to 5.85% when assets leave the trust.
The consultation proposes quite a radical overhaul of how the charges are calculated where a trust holds APR and BPR assets. The proposals are very complex and differ from how the nil rate band applies to these trusts. This introduces unwelcome complexity and rows against wider attempts to simplify taxation. The changes are also likely to increase the tax burden for the taxpayer. In short:
All pre-30 October 2024 trusts will have their own £1m allowance, so long as they held 100% APR/BPR assets as at 29 October 2024*. There are complex transitional provisions for how the first 10 year charge will be calculated post 6 April 2026, although thankfully these appear to include some concessions to the taxpayer. (* It remains to be seen whether this grandfathering provision will apply to trusts set up shortly before Budget day with property capable of benefiting from 100% relief given that the two/seven year ownership/occupation conditions of the 100% reliefs will not have been satisfied by 29 October 2024.)
Trusts established on or after 30 October 2024 will have a £1m allowance allocated on a chronological basis. Therefore, if trust 1 was settled with £1m of 100% APR/BPR assets, it will get the allowance and no subsequent trusts will benefit from the allowance. This is the case even if trust 1 sells its 100% APR/BPR assets, or is wound up – in these scenarios the £1m allowance previously held by trust 1 would be lost.
The allowance will apply on a refreshed 10 year basis. Therefore, when a trust is settled, the first 10 years will benefit from a £1m allowance. Distributions of 100% APR/BPR assets will reduce that allowance, with the result that a lower (or no) allowance will apply on a 10 year charge. Once the next 10 year period starts, the allowance will refresh.
Further clarification has been given in respect of the operation of the £1m allowance, although some points remain unclear. As expected, the following confirmations were given:
If a beneficiary is treated as the owner of trust assets, the trust will share a £1m allowance with the beneficiary’s personal assets. This is the same mechanism as applies in these circumstances with respect to the nil rate band. The £1m allowance will be pro-rated between the trust and the personal estate on death.
Where an individual dies and has made gifts of 100% APR/BPR assets in the seven years prior to their death, the £1m allowance will be allocated in chronological order. Again, this follows how the nil rate band would apply in these circumstances.
Although there were some new points in the consultation (most importantly that (i) the allowance will refresh every seven years and (ii) the related property rules might be extended), the overall scheme of the proposals remains largely as anticipated.
Sarah Wray, Senior Associate, Private Client, Charles Russell Speechlys
The long-awaited IHT consultation on the proposed reforms to agricultural and business property relief (APR and BPR) (coming in from 6 April 2026) emerged yesterday afternoon (27 February 2025). The consultation is open for two months. Although the consultation was largely as expected, there were a few clarifications and new details which Sarrah Way (Charles Russell Speechlys) discusses here.
The Good
There were a few good news items in the consultation:
1. As announced on Budget Day 2024, each individual will have a £1m allowance for claiming 100% relief. There was concern that this would be a lifetime allowance. However, the consultation explains that it will instead operate like the nil rate band and will refresh every seven years on a rolling basis.
This means that after 6 April 2026 Anthony, assuming he settled no other trusts, can settle £1.65m of 100% APR/BPR assets into trust on year one. £1m will be fully relieved. £650,000 will be covered by a mix of 50% relief and his nil rate band. After seven years, both allowances refresh and Anthony can settle a further £1.65m of 100% APR/BPR assets into trust.
2. Potentially exempt transfers – i.e. lifetime gifts to individuals – will not use the allowance if the donor has survived the gift by seven years. This is akin to how the nil rate band operates. For example, Bethany gives £1m of 100% BPR assets to her daughter and then dies eight years later. Her estate will qualify for a further £1m allowance. Had she died within seven years, the gift will use up the allowance and none would be available to her estate.
3. Interest-free instalment option payments will be extended to cover any property which qualifies for APR or BPR at whatever rate. This is welcome clarification and will cover a few more unusual situations which wouldn't otherwise qualify under the current rules. This means that IHT due on APR and BPR property can be paid in 10 annual instalments, interest-free which will be valuable for businesses and farms.
4. The new rules will not apply to distributions of 100% APR/BPR assets from relevant property regime (RPR) trusts (see 9 below) until after the first 10 year anniversary after 6 April 2026, if those assets were settled before 30 October 2024. Depending on 10 year charge dates, this potentially gives a much longer window for trustees and family members to think about bringing assets out of trust, without incurring an exit charge, if the prospect of future 10 year charges is unpalatable.
5. Due to the unclear language of the original Budget announcement, there were some initial concerns that BPR on private company shares was being reduced to 50% as part of the changes to the taxation of AIM shares. Although this was clarified informally by the Treasury in the days following the Budget, this consultation expressly confirms that private shares will continue to benefit from 100% BPR, subject to the £1m allowance.
6. For any owners of foreign shares listed on non-recognised stock exchanges, there may be more flexibility to undertake planning before 6 April 2026 because it appears that the anti-forestalling rules which will apply to other classes of APR/BPR assets won’t apply to these assets.
7. The consultation has asked for views on introducing an extension to the related property rules. The related property rules currently apply between spouses. If husband and wife own a company jointly, the company is valued as a whole and then the valuation allocated to each spouse in proportion to their interest. This approach therefore captures marriage value and prevents the imposition of discounts which would otherwise apply to part interests.
The Government is clearly concerned that there will be a growing trend towards fragmentation of 100% APR and BPR assets in order to introduce discounts and maximise £1m allowances. Therefore, in the context of trusts, they are suggesting introducing a rule that 100% APR/BPR property held by different trusts, but settled by the same settlor, is valued together.
For example, Colin might be minded to settle his valuable BPR company into five trusts before 6 April 2026. He had considered settling them into five trusts in order to maximise shareholder minority discounts. He understands that a 20% holding in his company is worth significantly less than 20% of the whole because of its lack of voting influence; his adviser has said that discounts of 60% might be available. If these related property rules are introduced, this planning will not work. The shares held across Colin’s five new trusts will be valued as a 100% holding, and that valuation will be split equally between them.
8. The Budget announced that an individual’s £1m allowance would not be transferable between spouses. In professional circles, this proposal has been widely criticised because it will drive the fragmentation of businesses and farms. If the allowance is not transferable, in order to use both allowances within a marriage, a married couple will have to carve off a proportion of their APR or BPR assets following the first of their deaths in order to use the allowance of the first spouse to die. This will create a huge compliance burden for the taxpayer and HMRC in assessing these arrangements. Unfortunately, the consultation continues to state that the allowance will not be transferable. We expect this will be a point widely criticised in the consultation responses.
9. Certain trusts are RPR trusts and suffer IHT charges every 10 years and when assets leave the trust. The calculation of RPR charges is already very complex, although can be summarised as charges of up to 6% on the 10 year anniversary and of up to 5.85% when assets leave the trust.
The consultation proposes quite a radical overhaul of how the charges are calculated where a trust holds APR and BPR assets. The proposals are very complex and differ from how the nil rate band applies to these trusts. This introduces unwelcome complexity and rows against wider attempts to simplify taxation. The changes are also likely to increase the tax burden for the taxpayer. In short:
All pre-30 October 2024 trusts will have their own £1m allowance, so long as they held 100% APR/BPR assets as at 29 October 2024*. There are complex transitional provisions for how the first 10 year charge will be calculated post 6 April 2026, although thankfully these appear to include some concessions to the taxpayer. (* It remains to be seen whether this grandfathering provision will apply to trusts set up shortly before Budget day with property capable of benefiting from 100% relief given that the two/seven year ownership/occupation conditions of the 100% reliefs will not have been satisfied by 29 October 2024.)
Trusts established on or after 30 October 2024 will have a £1m allowance allocated on a chronological basis. Therefore, if trust 1 was settled with £1m of 100% APR/BPR assets, it will get the allowance and no subsequent trusts will benefit from the allowance. This is the case even if trust 1 sells its 100% APR/BPR assets, or is wound up – in these scenarios the £1m allowance previously held by trust 1 would be lost.
The allowance will apply on a refreshed 10 year basis. Therefore, when a trust is settled, the first 10 years will benefit from a £1m allowance. Distributions of 100% APR/BPR assets will reduce that allowance, with the result that a lower (or no) allowance will apply on a 10 year charge. Once the next 10 year period starts, the allowance will refresh.
Further clarification has been given in respect of the operation of the £1m allowance, although some points remain unclear. As expected, the following confirmations were given:
If a beneficiary is treated as the owner of trust assets, the trust will share a £1m allowance with the beneficiary’s personal assets. This is the same mechanism as applies in these circumstances with respect to the nil rate band. The £1m allowance will be pro-rated between the trust and the personal estate on death.
Where an individual dies and has made gifts of 100% APR/BPR assets in the seven years prior to their death, the £1m allowance will be allocated in chronological order. Again, this follows how the nil rate band would apply in these circumstances.
Although there were some new points in the consultation (most importantly that (i) the allowance will refresh every seven years and (ii) the related property rules might be extended), the overall scheme of the proposals remains largely as anticipated.
Sarah Wray, Senior Associate, Private Client, Charles Russell Speechlys
