Valuation of Agricultural and Business Property

Introduction

Labour’s first post‐election Budget announced a £1million allowance to cap availability of 100% Agricultural Property Relief (APR) and Business Property Relief (BPR) and the removal of 100% BPR from AIM shares. Where 100% relief previously applied, 50% relief will apply instead. As a result, from 6 April 2026, inheritance tax will become payable in circumstances that would currently qualify for full relief from inheritance tax.

Consequently, those who may be affected by these changes are giving consideration to how these changes will impact them. The value of assets is crucial to any decision making in this area.

This note provides a high-level overview of some key valuation considerations that are relevant to inheritance tax.

Inheritance tax

Requirement for a valuation

A valuation may be required for inheritance tax purposes for a number of occasions of charge, as follows:

• Lifetime transfers which are or become chargeable, including gifts to a trust, company or individual. The value transferred for inheritance tax purposes is the amount of the loss to the transferor’s estate at the date of the gift;
• Death of an individual. The value transferred is the value of the deceased’s estate immediately prior to death. An individual’s estate comprises all property to which an individual is beneficially entitled;
• Ten-year anniversary and exit charges on certain trusts. Valuations should be considered to determine the value of trust assets on the day before the ten-year anniversary and when assets are distributed from trust. When performing valuations, broadly, assets held in trusts set up on the same day and transfers made in the seven years prior to the trust being set up also need to be considered.

Loss to the transferor’s estate

The concept of loss to the estate requires a valuation both before and after the transfer. The loss to the estate is the difference between the two.

This can mean that the loss to the estate is very different to the value of the property if it were to be considered in isolation, or for other purposes, such as for capital gains tax purposes.

Example

An individual owns 51% of the shares in a company. The company is worth £100.

The individual settles 2% of the shares in the company into trust. The loss to the individual’s estate will be the value of a 51% control holding minus the value of a 49% minority holding – in other words a lot more than £2, since the value of the ‘after’ holding will reflect a minority discount.

If the individual’s spouse or civil partner was beneficially entitled to shares in the company, all of these shares would need to be taken into account when valuing the shares transferred for inheritance tax purposes.   

The government published a consultation document on 27 February 2025 which concerns the calculation of inheritance tax charges payable by trustees of certain trusts. One point that the government is considering is extending the aggregation rules explained above to valuations of trust assets when calculating ten-year and exit charges, where the same settlor has settled assets into multiple trusts.

Capital Gains Tax (CGT)

Requirement for a valuation

When assets are transferred otherwise by way of a bargain at arm’s length (e.g. when assets are gifted or sold for less than market value), or when assets are transferred to a ‘connected person’, the individual who made the disposal is treated as having disposed of the asset for market value for tax purposes. ‘Connected persons’ for CGT purposes is widely defined and includes children, parents, siblings, trustees of trusts an individual has settled and certain companies with which an individual has a connection.

Aggregation

Different aggregation rules apply for CGT purposes. These require that any connected person transfers in a rolling six‑year period are aggregated for valuation purposes, which can result in transactions being revalued for tax purposes.

Example

A taxpayer owns 100% of the shares in a company.

In Year 1, he transfers a 20% shareholding to a connected party. Market value is calculated on the basis of a 20% shareholding, which is an uninfluential minority and would often attract a substantial minority discount.

In Year 2, he transfers a further 20% shareholding to a different connected party. Market value is calculated as part of a 40% shareholding, a large influential minority attracting a lower minority discount. Importantly, the Year 1 disposal of a 20% shareholding is revisited and revalued as part of a 40% shareholding. That may involve using a different (wider) dataset and the minority discount will be reduced.

In Year 3, he transfers a third 20% shareholding to another connected party. Market value is calculated as part of a 60% control shareholding and the Year 1 and Year 2 disposals are revisited and recalculated as part of a 60% shareholding.

HMRC approach and valuations

There is a requirement to include valuations on inheritance tax returns when reporting is required, including in cases where 100% relief from inheritance tax is available due to the availability of APR and/or BPR. However, historically, where 100% APR and/ or BPR were available taxpayers may have adopted a light touch approach to valuation. Given the reduced availability of 100% relief and resultant increase in taxpayers who have, or who may have, an inheritance tax liability, robust, well-documented valuations will increasingly be required.

Valuations are also relevant for CGT purposes, notably in circumstances where transactions are deemed to be done at market value. Values cannot be agreed with HMRC in advance of a transaction, though HMRC do offer a Post Transaction Valuation Check (PTVC) service for CGT (and corporation tax) purposes. This service is offered at HMRC’s discretion. PTVCs cannot be used for other taxes, and notably do not apply for inheritance tax purposes.