What has changed?
The October 2024 Budget announced that, from 6 April 2026,100% inheritance tax relief for business and agricultural property would be restricted to £1m with only 50% relief for any excess. Today’s announcement increases that 100% allowance to £2.5m rather than £1m as originally proposed. In theory this will halve the number of affected estates whilst still retaining most of the £500m additional annual tax take.
The new threshold means that a couple with a business or farm will be able to pass on £5.65m on death, being two x £2.5m + two nil rate bands, without inheritance tax. Planning will still be required to ensure that each spouse has sufficient business or agricultural property to utilise the allowances.
Our initial comments
- Clearly this upgrade to the full relief threshold comes after considerable pressure and will be widely welcomed.
- However, this u-turn has been made at the eleventh hour in terms of tax planning. Any farmer or business person who wanted to plan will probably have taken action by now – and incurred professional fees to do so.
- A jump in 100% relief from £1m to £2.5m is significant, but with high land prices and expensive machinery, many farmers will still find themselves in scope. For these farms and businesses, the excess will still be taxed at an effective rate of 20% and the next generation will still need to find cash to pay the inheritance tax liability without any additional resources.
- Valuations of both farms and businesses will remain important and potentially controversial with disputes around the £2.5m threshold.
- The addition of unused pension pots to the IHT calculation in 2027 will add to the tax bill from April 2027.
Summary
| Relief type | Budget 2024 threshold for 100% relief | New proposed 100% relief threshold 23rd December 2025 | Beneficiaries |
|---|---|---|---|
| APR | £1 million | £2.5 million | Farmers & owners of agricultural property |
| BPR | £1 million | £2.5 million | Owners of qualifying business assets |
This change more than doubles the asset value that can be fully sheltered from inheritance tax and so is an important update to the inheritance tax position for individuals and families with valuable business or agricultural holdings.
We remain of the view that business and agricultural families will need to make plans for succession and for the funding of any tax arising on transfers to the next generation. If you would like to talk to us about succession planning for business or agricultural property please speak to your usual Weatherbys Private Bank banker.
Important information
Tax laws are subject to change and taxation will vary depending on individual circumstances. Specific advice should be taken before implementing any tax planning.