There had been wide speculation as to the changes that a new Government might bring to the Inheritance Tax (IHT) regime and whilst it remains largely unchanged in terms of Nil Rate Bands and rates, there have been two major changes that could have significant impact on businesses and individuals alike.
It was announced that the Government will reform APR and BPR from 6 April 2026. The 100% rate of relief will continue for the first £1m of combined agricultural and business property, falling to 50% thereafter.
In addition to this, the rate of BPR will also fall to 50% in all circumstances for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM.
APR currently allows a person to pass on the agricultural value of some property in the UK free of IHT. This includes land or pasture used to grow crops or rear animals and farm buildings where the relevant conditions are met.
Assets that may qualify for BPR include: a business or an interest in a business; land, buildings or machinery used in a business; and shares in an unlisted company. Where BPR is available, the value of an asset can be reduced by 50% or 100% when working out the IHT due. It should be noted that assets that currently only qualify for the 50% BPR rate will not use up the £1m allowance.
The £1m allowance will also apply to trusts and the IHT payable on 10-year anniversary charges and exit charges. In addition, the new rules will apply to lifetime transfers on or after 30 October 2024 where the donor dies on or after 6 April 2026 to prevent forestalling.
The second major change applies to pensions and with effect from April 2027, most unused pension funds and death benefits will be included within the value of a person’s estate for IHT purposes. This removes an exemption that could have saved IHT of up to 40% of the value of the pension fund.
As a result of these changes, we would recommend that you assess your position and ask yourself the following questions:
- Are you currently within the scope of IHT and impacted by these changes?
- Do you qualify for BPR or APR and could the changes leave you exposed to IHT?
- What will your estimated IHT exposure be?
- Is it possible to mitigate this exposure with further planning?
- How would you fund this liability if no further actions are taken?
If you would like to speak with one of our specialist tax advisers and discuss this further, then please contact us by emailing solutions@ellacotts.co.uk or call us on 01295 250401.
Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.
