Succession planning for agricultural estates has become more challenging due to provisions announced in the UK 2024 Budget. The key change is the capping of Agricultural and Business property relief.
What is agricultural and business property relief?
Agricultural and business property relief applies to qualifying assets eligible for 100% agricultural property relief and 100% business property relief. This means these assets are excluded from Inheritance Tax calculations when their owner dies. This relief is available in addition to the existing nil-rate bands and exemptions. However, from 6th April 2026, this relief will be capped.
What has changed?
From 6th April 2026, agricultural property relief (APR) and business property relief (BPR) will be capped at £1 million of qualifying assets. The value of assets in excess of £1 million will be taxed at 50% of the current Inheritance Tax (IHT) rate. At the current IHT rate of 40%, the IHT charge for the value of qualifying assets in excess of £1 million will be 20%.
The government has also indicated that the £1 million cap is a combined value of agricultural and business property assets and cannot be transferred to a spouse on death.
What to consider when carrying out succession planning
You must consider the options available to deal with APR and BPR as part of the succession planning process. This starts with a discussion on the structure of the business and the valuation of the assets. Then you need to consider some options.
Lifetime gifting and taper relief (the 7-year rule)
Gifting ownership of assets during your lifetime is an effective way of reducing your exposure to Inheritance Tax. Gifting can be to family members or a trust. However, you should avoid gifts with reservation of benefit, where you continue to enjoy the benefits but no longer own the asset. If you successfully do this and survive for at least seven years, the gifted asset will no longer form part of your estate for Inheritance Tax purposes. If you don’t survive the 7 years, care needs to be taken to ensure the asset remains qualifying in the hands of the recipient.
Gifts made before 6 April 2026 are subject to the current APR and BPR rules. However, deaths from 6 April 2026 will be recalculated under the new rules. The current rules apply for deaths before 6 April 2026.
Splitting ownership
If you own assets in your own name, consider transferring a share in the asset to your spouse. If you split the asset with your spouse, you immediately reduce the asset’s value as part of your estate by the amount you have shared. You might also consider splitting the assets with your family. This further dilutes your estate, but care should be taken about potential future separation or divorce. You might want to combine any asset split with a post-nuptial agreement.
When you split ownership, in addition to each individual’s allowances, they each have £1 million of agricultural and business property relief.
Life Insurance
You might consider taking out life insurance that is paid out with your estate and designed to cover all or part of the IHT your estate will face or any IHT payable as a result of a lifetime gift made within seven years of death.
Seek professional advice
Trying do-it-yourself fixes to something as complex as succession planning is not sensible. You should seek professional legal and financial advice and develop strategies that meet your needs. There is no one-size fits all approach to tax planning as everyone has different circumstances and requirements. It is also essential to review plans regularly, especially when any changes can impact your decisions.
