What is changing?
The 2024 Budget proposed a change to the relief available for businesses that qualify for either Business Property Relief (BPR) or Agricultural Property Relief (APR). Prior to the change, assets which qualified for relief could be passed down to the next generation free from IHT to allow them to continue the family business without the need to sell assets and raise funds to pay an IHT bill.
However, now the change restricts this relief to £1 million for qualifying assets, with 20% IHT – half of the usual rate – applied to any assets above this amount. Individuals also retain their usual £325k IHT nil rate band and potentially their main residence nil rate band of up to £175k if their estate value is below £2 million.
Who is affected?
Any businesses that currently qualify for either BPR or APR, and have asset values above the available relief of £1 million, will now be brought into this new IHT regime. The industry most affected by this change is farming, as they generally require land/fixed assets for day-to-day operations but often do not have sufficient liquidity or surplus income to pay a significant amount in IHT.
When does the change take effect?
6th April 2026.
When does the tax need to be paid?
It can be paid in equal instalments over a 10-year period.
What planning options are available to helping mitigate the impact of this tax?
There are several options, but each comes with advantages and disadvantages, so should be carefully considered before any decisions are taken:
- Splitting ownership of the business: By splitting ownership, each owner will be entitled to their own £1 million relief. This allows the next generation to exercise a degree of control to help with the continuity of the business going forward. However, it does dilute control, and the next generation may be too young or not interested in running the business going forward. Additionally, this option would involve setup costs and potentially higher ongoing costs.: By splitting ownership, each owner will be entitled to their own £1 million relief. This allows the next generation to exercise a degree of control to help with the continuity of the business going forward. However, it does dilute control, and the next generation may be too young or not interested in running the business going forward. Additionally, this option would involve setup costs and potentially higher ongoing costs.
- Use of trusts: If a current owner moves business assets or shares into a trust for the benefit of another, and survives for a further seven years, this could potentially reduce the IHT due on the estate. However, there are restrictions depending on the type of trust. These include the need to weigh up the loss of control against the use of a flexible/discretionary trust which often carries higher entry, periodic and exit charges. Capital gains tax may also arise on any transfers of assets into the trust. Using a trust therefore comes at a cost and can increase complexity.
- Moving the structure from sole trader/partnership into a company structure: This route allows different family members to be given share classes to reflect their involvement, interest or entitlement, and ongoing tax can potentially be reduced going forward. However, changing the ownership structure to a company may trigger a tax charge and would also require a shareholder agreement to be in place. The current owner(s) would also need to understand that corporate structures are more complex to administer and so would also involve higher ongoing costs.
- Use of insurance: The current owner(s) could put in place an insurance policy to provide the funds needed to cover the potential IHT liability and payout to the trust so as not to increase the value of the estate. Crucially, the estate executor(s) would be able to access these funds prior to probate being granted, which is when the money would be needed most to pay the IHT liability. However, these policies come at an ongoing cost that the business may find unaffordable, and it may be difficult to identify what the actual IHT liability is on death. In addition, the cover amount may not be appropriate if there is a long time horizon that needs to be covered. Insurance could also be considered to help cover a potential IHT liability.
- Gifting: This is the most straightforward option and can reduce the potential IHT liability if the donor survives for seven years after making the gift. However, the main disadvantages are the loss of control over the assets that the donor needs to live on, the beneficiaries may be too young to receive a gift and, if the owner’s children are going through a divorce, there may be a potential ‘claim’ by children-in-law.
How Weatherbys can help?
There is no simple way to avoid the IHT changes that are coming. However, Weatherbys can assist with financial planning and work closely with you to create a well-thought-out plan to help mitigate the impact of the changes. To start a conversation with us, click the button below, or contact our Head of Entrepreneurs, Nick Gornall on +44 (0) 7436 239 639 or ngornall@weatherbys.bank.
What you need to know
Tax laws may change and taxation will vary depending on your own personal circumstances.