Adviser Briefing: Changes to APR (Autumn Budget 2024)

Significant changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) were announced at the 2024 Autumn Budget. This guide considers the changes in relation to farming. What is changing and what might the impact be? 

Both Agricultural Property Relief (APR) and Business Property Relief (BPR) can provide up to 100% IHT relief in respect of an individual's relevant business property on death.

Autumn Budget 2024:

It was proposed in the 2024 Autumn Budget that, from 6 April 2026:

• The 100% rates of APR and BPR will remain at 100%, but only up to a combined allowance of £1m. 
• Where the combined value of business and agricultural property assets exceeds the £1m allowance, the rate of relief will be reduced to 50%.
• For individuals, the £1m allowance will cover:
  • Property in an estate at death.
  • Lifetime transfers to individuals in the seven years before death (failed PETs).
  • Chargeable lifetime transfers where there is an immediate lifetime charge (e.g. most transfers into trust).

In addition, from 6 April 2025:

• APR will be extended to include land managed under an environmental agreement with the UK government, devolved governments, public bodies, local authorities and approved responsible bodies.
• This announcement was made by the previous Government, but it has been confirmed the measure will be legislated in Finance Bill 2024-25. 

A further change from 6 April 2026 will impact BPR on Alternative Investment Market (AIM) shares: 

• BPR will be reduced to 50% on shares designated as 'not listed' on the markets of recognised stock exchanges, such as the Alternative Investment Market (AIM). 
• This rate of relief will not be affected by the new £1m allowance above. 

What is Business Property Relief? 

Business Property Relief (BPR) is a relief from Inheritance Tax (IHT) which applies to the transfer of  'relevant business property'. Relief is given at either 100% or 50%. 

Relevant business property includes: 

Transfers which may qualify for BPR include: 

• Transfers on death.
• Transfers made in the seven years before death (failed Potentially Exempt Transfers, or PETs).
• Lifetime transfers into, and out of, trusts. 

Property must generally be held for at least two years before a transfer to qualify for BPR.

• There are restrictions which can apply to BPR such as where ‘excepted assets’ are held by the business. Excepted assets are outside the scope of this note. 
• BPR is not available if a business is one that 'wholly or mainly' deals in securities, stocks or shares, land or buildings or in the making or holding of investments.

What is Agricultural Property Relief?

Agricultural Property Relief (APR) is a relief from IHT which applies to the transfer of qualifying agricultural property. 

APR is broadly given on the agricultural value of UK agricultural property which has been either:

• Occupied by the owner for agriculture for two years ending with the date of the transfer.
• Owned by them for seven years ending with the date of transfer and occupied throughout by them or another for the purposes of agriculture.

APR is given at one of two rates: 100% or 50%. In most cases, the 100% rate applies (or is obtainable with careful planning). 

APR can also be available for controlling shareholdings in unquoted companies which have assets that are agricultural property, to the extent that the value of the shares is attributable to the agricultural value of that agricultural property.

As with BPR, transfers which may qualify for APR include: 

• Transfers on death.
• Transfers made in the seven years before death (failed PETs).
• Lifetime transfers into, and out of, trusts. 

What is the impact of the Autumn Budget proposals on a farm business?

Take the example of Michael. His estate consists of: 

Michael:  

• Never married and has no children. 
• Made no lifetime transfers. 
• Leaves his entire estate to his nephew and niece. His estate does not qualify for the Residence Nil Rate Band (RNRB). 

If Michael passes away on 6 April 2025, under the current rules, the IHT liability arising on his estate is: 

No IHT is payable on Michael's estate if he passes away on 6 April 2025. 

If Michael passes away a year later, on 6 April 2026, under the proposed new rules, the IHT liability of his estate is: 

The IHT due on Michael's estate is £1,154,000, should he die on 6 April 2026.

This IHT liability clearly exceeds the value of liquid assets in his estate, which may necessitate assets being sold and/or debts being taken on to finance the IHT payable. 

Note that it is possible to pay IHT in instalments over ten years, but these may be interest-bearing.  

For noting:

Married couples or civil partnerships

• In our example, Michael is a single farmer. If he was married, his spouse or civil partner would also have the benefit of APR and BPR. These reliefs are per individual and not per farm.
• Michael is also childless: if he had children who wished to continue to run the farm, the proposed changes favour lifetime giving, Capital Gains Tax (CGT) Holdover Relief can be considered to mitigate capital gains.

Diversification impacts

• In our example, Michael's farm is fully qualifying for APR for IHT purposes.
• Diversification into both solar and battery schemes is likely to result in a loss of both APR and BPR for the land and buildings affected: these activities are treated as wholly or mainly of making or holding investments. Likewise, Environmental Land Management (ELM) schemes may also impact on IHT reliefs, further detail is awaited from government on its policy for ELMs and IHT, as many schemes potentially extend over several lifetimes.

What should I do now? 

The changes announced to APR and BPR are proposals, not law. 

• The government will publish a technical consultation on the changes in early 2025, and the proposals may, therefore, be subject to change.

There are several steps anyone potentially affected by the proposed changes should now take. 

1. Establish the potential exposure to IHT as a result of the changes.

• Estimate the scale of any IHT liabilities which may arise from 6 April 2026.
  • It is impossible to plan effectively until the potential tax exposure is known.
  • If assets subject to APR and/or BPR are less than £1m, the IHT position will not change in 2026 (unless AIM shares are held). 
• This step will need to include a comprehensive analysis of all likely assets and liabilities in a person's estate, along with how they will be distributed under their Will. 

2. Review Wills. 

• Review existing Wills carefully from an IHT perspective and consider whether there are any simple changes which might improve the overall IHT position.
  • It may be that provisions which were previously IHT-efficient will be less efficient under the proposed new rules.
• For example, any unused £1m allowance for APR and BPR will not be transferable between spouses and civil partners, but each individual will have an allowance. 
  • This differs from the Nil Rate Band and RNRB, where the unused amounts of pre-deceased spouses/civil partners can be used on the death of the second spouse/civil partner. 
  • It may now be more IHT efficient for spouses/civil partners to each have an interest in APR and/or BPR qualifying assets, and leave those interests to the next generation on each death, to ensure that each spouse/civil partner benefits from their £1m allowance. 

3. Do not take hasty action: plan carefully.

• As noted above, the changes announced are proposals and not yet law. While it may be wise to start to plan, remember that we do not yet know the final rules.
• It was announced that the new rules will apply for lifetime transfers on or after 30 October 2024, if the donor dies on or after 6 April 2026.
  • It is not, therefore, as simple as giving away assets before 6 April 2026: if the donor dies on or after 6 April 2026, a transfer made now will be caught by the changed APR/BPR rules. 
• Consider whether there will be sufficient liquid or saleable assets in the estate to settle any IHT liability.
  • While some future IHT burdens may be higher as a result of the proposed changes, it may be that some taxpayers are unbothered by this as long as certain assets (e.g. the family farm) can be retained and not sold. 
  • Methods of financing any IHT liability which arises should be considered. For shares, it may be that cash held by the company can be accessed via a Company Purchase of Own Shares. Business owners may wish to set aside cash from business operations for potential IHT liabilities but note that this might restrict the availability of BPR. 
• Take advice from Independent Financial Advisers. It may be that there are alternative options to consider to finance IHT, such as whole-of-life insurance cover. 
• Every case will be different, and there will be no one-size-fits-all answer. It is likely that many business owners will increasingly need to consider lifetime giving as part of their overall IHT planning strategy, but this must be considered carefully: 
  • As above, for deaths after 5 April 2026, gifts from 30 October 2024 will be caught by the new rules. Therefore, to be fully effective, lifetime gifts ideally need to be survived by seven years in order to fall out of the estate altogether. 
  • Where a gift is not survived by seven years, there are additional conditions to be met for APR and/or BPR to apply to the failed PET. These must not be overlooked, otherwise the IHT position may worsen.
  • In some cases, there is a risk that the Gift With Reservation Of Benefit (GWROB) rules may apply to nullify any possible IHT advantage if a gift is made, but the transferor continues to derive a benefit from it. Gifts must be absolute.
  • Other tax charges need to be considered as lifetime giving may crystalise other taxes, such as Capital Gains Tax (CGT) and Stamp Duty Land Tax (SDLT). Holdover Relief might be available on lifetime gifts to protect the CGT position, but this merely defers gains and so may result in higher CGT charges in future, if assets are sold.
• If lifetime giving is undertaken, depending on its scale, there can be secondary IHT benefits from: 
  • Taper Relief, if the donor dies within seven, but after three, years.
  • Reinstating the RNRB, where an estate's value is reduced below £2m due to the gift.
• Where APR and/or BPR qualifying assets are inherited going forward, consider whether a Deed of Variation, to effectively rewrite the Will of the deceased and pass assets down a further generation, may assist in eliminating a second IHT event in the short to medium term. 

Will using a trust help? What is the position for existing trusts? 

Trusts have been used for decades, both for asset protection and tax planning. A point sometimes not appreciated is that trusts usually fall within the IHT regime. 

• Transfers into trusts are Chargeable Lifetime Transfers (CLTs) for IHT purposes.
  • This means that a lifetime IHT charge can arise on setting up a trust, unless the transfer is covered by the Nil Rate Band or reliefs, such as APR and/or BPR. The restriction to APR and BPR discussed above will apply.
• A further IHT event occurs on the death of the settlor of the trust, if that death is within seven years of assets being transferred to it.
  • Again, APR and/or BPR might apply to reduce any IHT payable, but going forward, the restriction to APR and BPR discussed above will apply.
• Trusts are also subject to IHT charges Every ten years and each time a property leaves the trust (Exit charges).
  • APR and/or BPR can apply on these occasions, too.

Under the proposed new rules from 6 April 2026:

• There will be a combined £1m allowance for trustees on the value of qualifying property to which 100% relief applies, on each tenth-anniversary charge and exit charge.
  • This makes it more likely that IHT charges will arise for trustees from 6 April 2026. 
• Where a settlor has set up more than one trust comprising qualifying business property and/or agricultural property before 30 October 2024, each trust will have a £1m allowance for 100% relief from 6 April 2026.
  • Existing trusts should be reviewed. Trusts with higher asset values which have historically not paid IHT due to APR and/or BPR may be subject to IHT charges from 6 April 2026. 
• Rules will ensure that the £1m allowance is divided between trusts where a settlor sets up multiple trusts on or after 30 October 2024.
  • This prevents individuals from now setting up multiple trusts with a view to obtaining multiple £1m allowances.

The creation of a trust might form part of a successful IHT planning exercise, but it will not suit every individual case.

As the changes to APR and BPR will impact trusts, the use of a trust is not always going to be a perfect solution as IHT charges may arise on its creation, existence, and termination, depending on the asset values involved.

The wider implications of assets being in a trust should be considered. One difficulty experienced by farms where land is held in trust is the ability to raise finance using the land as security may be restricted. This should be considered if debt finance may be needed in the future.

Useful guides on this topic

IHT Business Property Relief
A guide explaining what Business Property Relief is, when it can apply and pitfalls and planning points.

IHT Agricultural Property Relief
What is Agricultural Property Relief (APR)? When does it apply? What are the conditions and restrictions of the relief?

IHT: Main Residence Nil-Rate Band (RNRB)
What is the Main Residence Nil-Rate band? When was it introduced? How does it work? Who can claim it?

CGT: Holdover/Gift Relief (s.165/s.260)
Holdover Relief is available when an individual makes a gift to another person (individual or company). When is the relief available? What are the conditions that apply? What restrictions are there?

IHT: Transferable Nil-Rate Band
What is the Transferable Nil-Rate Band for Inheritance Tax? Who does it apply to? How do I claim it?

IHT: Gifts with reservation
What are the Gift With Reservation (GWR) rules? When do they apply?

Client Briefing: Making gifts & IHT
What gifts can you make without triggering Inheritance Tax (IHT)? What are the rules on making tax-effective gifts for IHT purposes?

Trusts & Estates: Ten-year charge reporting requirements
What is the ten year charge (or principal or periodic charge) and when does it apply?

Trusts & Estates: Exit charge reporting requirements
What is an exit charge or proportionate charge, and when does it apply?