Agricultural and Business Property Reliefs Consultation

Introduction

In the Autumn Budget 2024 the Chancellor announced restrictions to Agricultural Property Relief (APR) and Business Property Relief (BPR). These restrictions mean that a combined £1million allowance will be introduced for 100% relief for APR and BPR assets, with relief for any amounts in excess of the allowance being restricted to 50%.

Shares of any value listed on the Alternative Investment Market (AIM) will be restricted to 50% relief. 

The changes are to take effect from 6 April 2026, with some interim measures for transfers that occur between Budget Day (30 October 2024) and the rules coming into force.

A consultation document was published on 27 February 2025. It contains information on how these changes will take effect and invites comments on the technical detail of applying these changes when calculating inheritance tax charges on trusts. Comments are not invited on the changes as they affect individuals only, nor on the policy itself. 

This document provides a high-level overview of the changes, taking into account the contents of the consultation document. The consultation document itself is available at https://deloi.tt/4hWZWwD 

£1million 100% relief allowance

From 6 April 2026 a £1million allowance will be introduced for 100% APR and BPR.

Individuals

• Individuals will each have a £1million allowance. This will be a combined allowance that applies to both APR and BPR property (‘relievable assets’).
• Where multiple assets eligible for the allowance are subject to an inheritance tax charge, the allowance will be apportioned across all eligible assets.
• The allowance is to refresh every seven years. The nil rate band, which applies a tax-free amount on death, also refreshes every seven years, and the consultation document states that the refreshing of the new allowance will be modelled on the operation of the nil rate band. Notably, this means that the allowance will be offset against chargeable transfers on a chronological basis – i.e. against the earliest transfers first.
• The allowance will not be transferable on death. This means that if an individual dies and owns less than £1million of assets eligible for 100% APR and/or BPR, the unused allowance will be lost. Individuals who own relievable assets may wish to consider the value of their estate, especially spouses and civil partners where marital assets are held in one spouse’s name. The terms of wills should also be considered.
• The allowance can be used against transfers during lifetime that give rise to inheritance tax charges. This includes both gifts to individuals that become chargeable due to death occurring within seven years of making the gift and most lifetime transfers into trust.
• Individuals are subject to 40% inheritance tax on death, to the extent the estate exceeds the value of the nil rate band, £1million relievable assets allowance and any other available reliefs or exemptions. No inheritance tax is payable to the extent that assets qualify for 100% APR or BPR (capped at £1million of assets from 6 April 2026). If 50% APR or BPR is available, the effective rate of inheritance tax reduces to 20%.

Trustees

• Inheritance tax charges are payable every ten years by trustees of relevant property trusts (most trusts created during lifetime). Up to 6% inheritance tax is payable on ten-year anniversaries, though this is reduced by any available reliefs, exemptions and the nil rate band. At present, unlimited 100% APR and BPR may be available. From 6 April 2026 this will be capped at £1million of 100% relief, with 50% relief on additional value.
• Exit charges are payable when assets are distributed from relevant property trusts. Broadly, this is up to 6% of the value of the trust assets, reduced by available reliefs and exemptions, adjusted for how long the trust has existed / since the last ten-year anniversary. The £1million relievable assets allowance will be applied to distributions from trusts on a chronological basis – i.e. applying to the earliest trust distributions subject to an exit charge first. Any remaining £1million allowance can then be used on the trust’s next ten-year anniversary. If £1million or more of assets are distributed before the ten-year anniversary charge, no allowance will remain available to the trustees and a maximum of 50% APR or BPR will apply to the value of trust relievable assets.
• There are currently technical differences in the way that trust inheritance tax exit charges are calculated before and after the trust’s first ten-year anniversary. The government intend to align the rules, with all trust charges to be calculated in the way that inheritance tax charges are currently calculated before the first ten-year anniversary.
• Anti-fragmentation rules will be introduced, which are intended to prevent individuals from reducing their inheritance tax liabilities by settling assets into multiple trusts. These rules are that:

• There will be a single £1million allowance across trusts settled by the same settlor.

The settlor’s allowance is to be allocated to trusts in the order trusts are settled (e.g. £250,000 100% relievable assets settled on trust 1 = a £250,000 allowance for trust 1. £750,000 of 100% relievable assets settled on trust 2 = a £750,000 allowance for trust 2. No allowance remains for transfers to trust 3). 

The trustees’ available allowance is to be fixed at the outset. If a trust cannot use its full allowance (e.g. due to falls in asset values, or following distribution of trust assets), the unused allowance is lost. It cannot be used by other trusts settled by the same settlor.

• Valuations may take account of related assets in other trusts settled by the same settlor.

The government are considering applying ‘related property’ rules, which would mean that valuations would need to take account of related assets held in other trusts settled by the same settlor. For example, a controlling shareholding is worth more than a minority shareholding, so if multiple trusts own shares in a company, taking account of total shares held across trusts could increase the value per share.

Specific types of trusts

The consultation document makes specific comment on certain types of trust including:

• 18-25 trusts, which are trusts set up for young individuals who are bereaved by the death of a parent and who will receive trust assets by age 25. To avoid disadvantaging younger siblings, a £1million allowance will be available on transfers to each trust beneficiary.
• Qualifying interest in possession trusts, which broadly are trusts where the value of trust assets is treated as being within a beneficiary’s estate for inheritance tax purposes (and so are subject to inheritance tax when the beneficiary dies but are not subject to ten year or exit charges). The most common example is trusts created on an individual’s death which give a surviving individual the right to receive trust income or live in a trust property. The consultation document states that if the trust beneficiary makes lifetime gifts of trust assets on or after 30 October 2024 and dies after 5 April 2026, any gifts of 100% APR or BPR property will use all or part of the individual’s £1million allowance.
• For employee benefit trusts and temporary charitable trusts, which are subject to a specific tax regime that applies exit charges but not ten-year charges, the £1million allowance will not refresh every ten years.

Transitional rules

Transfers made before 30 October 2024

Individuals

• Transfers made before 30 October 2024 will be not affected by these changes, and inheritance tax charges (including unlimited 100% APR and BPR) will continue to apply if inheritance tax becomes payable after the above outlined changes take effect.
• Gifts made before 30 October 2024 will not use up any of the £1million allowance.

Trust inheritance tax charges for assets settled on trust before 30 October 2024

• APR and BPR assets settled on trust before 30 October 2024 will be brought into the scope of the new regime on the trust’s first ten-year anniversary which occurs after the new rules take effect on 6 April 2026. Until then, unlimited 100% APR and BPR will remain available where exit charges apply on distribution of trust assets, and such exits will not use any of the trustees’ £1million allowance when calculating the next ten-year charge.
• When the first ten-year charge under the new regime is calculated, the £1million allowance will cap the amount of BPR and APR available, though on a proportionate basis based on how long has elapsed since 6 April 2026. Unlimited APR and BPR will remain available to the extent the ten-year period under consideration falls before 6 April 2026.

Transfers made between 30 October 2024 and 5 April 2026 (inclusive)

Individuals

• Inheritance tax charges that arise before 6 April 2026 will be calculated under the existing rules, with unlimited 100% BPR and APR, including for AIM shares. This includes inheritance tax charges that arise due to a death or due to a lifetime transfer into a trust.
• The new rules will apply to inheritance tax charges that arise on or after 6 April 2026 in respect of gifts made between 30 October 2024 and 5 April 2026. This includes inheritance tax that arises due a death within seven years of making a gift, whether that is a gift to another individual (a potentially exempt transfer) or a gift to trustees (chargeable lifetime transfers).

Trustees

• Exit charges on trust distributions that are made before 6 April 2026 will be taxable under the rules which are currently in force, which means that unlimited 100% APR and BPR may apply.
• Trust distributions made before 6 April 2026 will not use up any of the trustees’ £1million allowance. This applies to any trust property settled before 6 April 2026, including any property that was settled in trust after the Chancellor’s announcements on 30 October 2024.
• Where property that was settled on trust on or after 30 October 2024 is distributed from trusts on or after 6 April 2026, the new rules will apply. This means that such transfers will use the £1million allowance on a chronological basis from 6 April 2026 (as set out above) and relief on AIM shares will be restricted to 50%.
• Gifts made to other individuals which are potentially exempt transfers will be taken into account for the purposes of the £1million allowance where the gift is made between 30 October 2024 and 5 April 2026 and the transfer becomes chargeable on or after 6 April 2026 (i.e. a lifetime gift to another individual is made in the transitional period and death occurs within seven years of the gift, and the death is on or after 6 April 2026).

Interest-free instalments

From 6 April 2026, the government intends to extend a ten-year interest-free inheritance tax instalment plan for eligible assets so that it will be available for inheritance tax arising on all APR and BPR assets.