HMRC have launched a consultation ‘Reforms to Inheritance Tax agricultural property relief and business property relief: application in relation to trusts’. This explores the technical application of the proposed Inheritance Tax (IHT) changes, announced at the 2024 Autumn Statement, in the context of trusts.
Background
In the 2024 Autumn Budget, it was announced that for Inheritance Tax (IHT) purposes, from 6 April 2026:
- The 100% rates of Agricultural Property Relief (APR) and Business Property Relief (BPR) would be restricted to a combined £1m allowance.
- Where the value of business and agricultural property assets exceeds the £1m allowance, the rate of relief will be reduced to 50%.
In practice, there will be separate £1m allowances for individuals and trustees.
Consultation outline
The technical consultation now launched seeks views on the application of the £1m allowance for property settled into trust.
The consultation lays down how the changes are expected to operate in four key areas:
- Transfers made on or after 6 April 2026.
- Transitional provisions for trusts and transfers made before 6 April 2026. This is broken down into:
- Transfers made before 30 October 2024.
- Transfers made on or after 30 October 2024 and before 6 April 2026.
- Anti-fragmentation: property added to multiple trusts on or after 30 October 2024.
- These proposed rules are designed to prevent individuals from reducing their overall IHT liabilities by settling property into multiple trusts on or after 30 October 2024.
- Special trusts, including age 18 to 25 trusts and qualifying interest in possession trusts.
What does the consultation reveal?
Several aspects of how the proposed rules are expected to operate are outlined in the consultation.
For individuals, these include:
- The £1m allowance is not a lifetime allowance but refreshes on a seven-year rolling basis.
- The allowance will be offset against chargeable transfers on a chronological basis and will not be transferrable between spouses or civil partners.
- Potentially Exempt Transfers (PETs) will not use the £1m allowance, providing they are survived by seven years.
- The £1m allowance applies to PETs and Chargeable Lifetime Transfers (CLTs) made on or after 30 October 2024, where the transferor dies within seven years of the transfer and on or after 6 April 2026.
- Transfers made before 30 October 2024 will not be affected by the changes or use up any of the £1m allowance.
For trusts:
- The £1m allowance for relevant property trusts will refresh every 10 years.
- Any £1m allowance used against an exit charge will reduce the maximum allowance available at the next 10-year anniversary.
- Trust distributions made before 6 April 2026 will not be subject to the new rules, regardless of when the property was settled.
- APR/BPR qualifying property settled into a relevant property trust before 30 October 2024 will be brought into the new regime on the trust’s next 10-year anniversary charge which falls on or after 6 April 2026.
- In the interim, property which exits the trust will continue to attract unlimited 100% relief on IHT exit charges until the date of the trust’s next 10-year anniversary which falls on or after 6 April 2026.
- Trusts created on or after 30 October 2024 by the same settlor will share a £1m allowance from 6 April 2026. This will be allocated in chronological order and fixed in value and allocation.
- Trusts in existence before 30 October 2024 will have their own £1m allowance, with no sharing of the allowance between related trusts.
- Standardisation of IHT Exit charge calculations is proposed, such that all exit charges are calculated based on unrelieved values regardless of whether the exit takes place before or after the first 10-year anniversary
One aspect on which the government is now seeking views is a proposed extension of the related property rules allowing APR/BPR qualifying assets settled by the same settlor across multiple trusts to be connected for valuation purposes.
The consultation confirms that from 6 April 2026, the government will extend the option to pay IHT in equal annual instalments over 10 years, interest-free, to all property which is eligible for APR or BPR, regardless of the applicable rate of relief.
Further detail and analysis of the proposed operation of the new rules, in light of the consultation, can be found in:
- Adviser Briefing: Changes to BPR (Autumn Budget 2024)
- Adviser Briefing: Changes to APR (Autumn Budget 2024)
The consultation closes on 23 April 2025. Responses can be sent online, or by email.
After the current consultation closes, the government will publish a response document and carry out a technical consultation on draft legislation later this year.
Consultation questions
Question 1: Are the rules on the application of £1 million allowance for individuals sufficiently clear for transfers made on or after 6 April 2026? What are your views on this?
Question 2: Are the rules on the application of the £1 million allowance for 10-year anniversary charges and exit charges sufficiently clear for property settled on or after 6 April 2026? What are your views on this?
Question 3: What are your views on the proposal to standardise the calculation of Inheritance Tax exit charges, so that all exit charges are calculated based on unrelieved values regardless of whether the exit takes place before or after the first 10-year anniversary?
Question 4: What are your views on the proposed transitional provisions for qualifying agricultural and business property settled into a relevant property trust before 30 October 2024?
Question 5: What are your views on the proposed transitional provisions for qualifying agricultural and business property settled into a relevant property trust during the transitional period?
Question 6: What are your views on introducing a single £1 million allowance for 10-year anniversary charges and exit charges where a settlor has transferred property into multiple trusts on or after 30 October 2024?
Question 7: What are your views on introducing rules similar to the existing ‘related’ property provisions for Inheritance Tax, so that multiple holdings by the same settlor across multiple trusts can be connected for valuation purposes?
Question 8: What are your views on the application of the £1 million allowance to special trusts, age 18 to 25 trusts and QIIP trusts?
Question 9: Do you have any further views on the application of the £1 million allowance to property which has been settled into trust?
Useful guides on this topic
Adviser Briefing: Changes to BPR (Autumn Budget 2024)
Significant changes to Business Property Relief (BPR) were announced at the 2024 Autumn Budget. What is changing and what might the impact be?
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?
IHT Agricultural Property Relief
What is Agricultural Property Relief (APR)? When does it apply? What are the conditions and restrictions of the relief?
IHT Business Property Relief
A guide explaining what Business Property Relief is, when it can apply and pitfalls and planning points.
Trusts & Estates: Exit charge reporting requirements
What is an exit charge, or proportionate charge, and when does it apply?
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