Since first being announced in the Autumn Budget 2024, the cap on relief afforded by Agricultural Property Relief (APR) and Business Property Relief (BPR) has been contentious.
Farmers and those with family businesses have both expressed great concerns that the new Inheritance Tax (IHT) rules would limit their operational capability for fear of saddling the next generation with a hefty bill.
Those concerns were partially listened to and the proposed cap was adjusted shortly before Christmas 2025.
Now the rules are in effect, it is time to consider how they will impact your business and what you can do to reduce your exposure.
What are the new Inheritance Tax rules for farms and family businesses?
The previously generous APR and BPR have now been capped so that the 100 per cent relief only applies to assets with a combined value of less than £2.5 million.
Any value above that will face a 50 per cent relief, which will undeniably add to a person’s estate for IHT calculations when they are asset-rich.
A couple can pass on up to £5 million of agricultural or business assets between them, on top of the existing allowances such as the nil-rate band, as they can combine their individual reliefs.
Why are these changes so controversial?
On paper, the idea of taxing high-value estates may be a logical way of boosting the health of the country.
In practice, many farms and family businesses are asset-rich but cash poor.
This means that the high-value assets that will push them into scope for IHT are also integral to the operation of the business or farm.
These assets may need to be sold by beneficiaries in order to pay for the IHT bill, which seems to run counter to the point of the changes.
IHT is not supposed to harm the business that is being passed to the next generation, but many fear that this will be the case.
How can Inheritance Tax exposure be managed?
While not a perfect solution, getting ahead of the game may be necessary to avoid IHT eating into your business’s operational effectiveness.
Gifting remains the strongest way to lower your IHT exposure.
While it may not be possible, or you may be unwilling, to gift the high-value assets that are necessary for your business, it may be possible to give away other parts of your estate.
Any gifts given more than seven years before your death are not counted in your IHT calculations, while those in the interim years are taxed at a tapered rate.
Ultimately, it is important for anyone at risk of IHT to carefully consider how their estate is structured.
We can help you review your IHT exposure and plan accordingly so that the fruits of your labour are not lost to your beneficiaries.
For help managing the new Inheritance Tax rules, speak to our team today.
