Inheritance Tax

It is difficult to recollect a more seismic Budget in recent times. The last major changes to Inheritance Tax were made in 2006, but mainly in relation to Trusts. There was an expectation that Inheritance Tax reliefs would be reformed, most likely for landlords who lease out land which qualifies for Agricultural Property Relief (APR). It was considered much less likely that Business Property Relief (BPR) would be reformed, and there was a distinct lack of speculation in this regard.

The proposed changes to APR and BPR (from April 2026) will be catastrophic for some businesses. Whilst the changes to APR and the “tractor tax” have dominated the press comment in the last month, the implications of the proposals are far wider than the agricultural sector. It applies to all trading businesses from Thurso to Truro, whether they are farmers or run the local off-licence.

Many business owners have retained assets in their own name rather than making lifetime gifts (on the basis that their estate would benefit from both Inheritance Tax relief and all assets would be rebased for Capital Gains Tax). The Budget changes will make lifetime gifting more frequent. Lifetime gifts may result in greater tax charges (e.g. Capital Gains Tax and Stamp Taxes). Lifetime gifts also mean passing ownership and control, which can have unintended consequences (e.g. on death, bankruptcy or divorce of the donee). Lifetime gifts are certainly not without their own risks.

The changes are particularly acute for those aged in their 80s and 90s. Many have been advised, quite reasonably under the current rules, not to make lifetime gifts, but now face the prospect of making lifetime gifts and hoping to survive seven years. Some may not have that option, and may decide to retain assets in their estate to benefit from the Capital Gains Tax rebasing at the expense of a 20% Inheritance Tax charge.

At the time of writing, there is very little comment from either the Government or HMRC about how the new rules will operate. There is too much uncertainty currently, and whilst there will be a consultation on the new rules in “early 2025”, it has only created an unsatisfactory void over the next few months.

The changes are too significant to ignore. What we do know is that the current Finance Bill (published 7 November 2024) does not make any immediate changes to the rules for APR and BPR, but we know the changes are coming. There is still 16 months before the new rules take effect, and once the tax landscape is better understood we will discuss the changes with you in more detail to form a plan of action relevant for you and your family.