Inheritance tax consultation on agricultural and business property
The consultation on certain aspects of the proposed inheritance tax (IHT) changes to agricultural and business property relief coming into effect on 6 April 2026 has been published.
The IHT consultation mostly focuses on the new £1 million allowance for property settled into trust. Aside from certain clarifications and new details, which are summarised below, the overall scheme of the proposals announced last autumn remain largely unchanged.
As a reminder:
- A new £1 million allowance will apply to the combined value of assets that qualify for 100% agricultural or business property relief (qualifying property).
- Beyond the £1 million allowance, relief will apply at 50% to the combined value of qualifying property.
The new inheritance tax consultation sets out how the proposals will work for qualifying property being transferred into trust on or after 6 April 2026 and transitional provisions for transfers made before 6 April 2026. The consultation also proposes a major change in how ten-yearly and exit charges are calculated, where certain trusts own assets that qualify for agricultural or business property relief.
In terms of welcome measures, the government proposes that the £1 million allowance for individuals will refresh every seven years on a rolling basis in a similar way to how the existing IHT nil rate band applies. The £1 million allowance will not be used up if an individual survives seven years from making a gift, referred to as ‘potentially exempt transfer’ (PET), of qualifying property to another individual.
Also welcome is the confirmation that the government will extend the option to pay IHT by equal interest-free instalments over ten years for all property that is eligible for agricultural or business property relief.
Transfers made before 30 October 2024
PETs and transfers into trusts made before 30 October 2024 will not be affected by the proposed changes and will be subject to the rules in place at the time they were made.
Qualifying property settled into most trusts before 30 October 2024 will be brought into the new regime on the trust’s next ten-year anniversary falling on or after 6 April 2026.
Such property settled before 30 October 2024 that exits the trust will continue to attract unlimited 100% relief from IHT until the date of the trust’s next ten-year anniversary which falls on or after 6 April 2026. Such exits will not reduce the £1 million allowance available at the next ten-year anniversary.
Depending on the ten-year anniversary date, this potentially gives trustees a longer period to take assets out of trust without an IHT charge.
Transfers made between 30 October 2024 and 6 April 2026 (the ‘transitional period’)
Where an individual has made a gift of qualifying property after 30 October 2024 and dies on or after 6 April 2026, the £1 million allowance will apply. Where death occurs before 6 April 2026, the new rules do not apply where a gift has been made during the transitional period.
Regarding transfers to trusts, the £1 million allowance for individual settlors will not apply to qualifying property settled into trust during the transitional period provided the settlor survives seven years from the date of transfer.
For exits of agricultural or business property before 6 April 2026 that was settled into trust on or after 30 October 2024, the trustees’ £1 million allowance will not apply to exit charges. Such exits will instead receive 100% relief from exit charges and will not reduce the £1 million allowance available. For exits after 5 April 2026, the £1 million allowance will apply and the value of the trustees’ £1 million allowance at the next ten-year point will be reduced accordingly.
Anti-fragmentation
Anti-fragmentation rules will be introduced to prevent individuals from reducing their IHT liabilities by settling qualifying property into multiple trusts. As such, there will be a single £1 million allowance across all trusts settled by the same settlor.
Views are also being sought on extending rules for valuing ‘related’ property from 6 April 2026 so that qualifying property settled by the same settlor across more than one trust can be connected for valuation purposes, where otherwise a discount may apply. The extension may apply regardless of trusts having different beneficiaries or whether the settlor can benefit.
Finally, the government has confirmed that any unused £1 million allowance is not transferrable between spouses. While the estate of the surviving spouse will be entitled to their own £1 million allowance, careful estate planning will be required to ensure that the first £1 million allowance is not wasted.
If you would like to discuss the implications of the proposed inheritance tax changes in the consultation or explore how our team can help you, please contact one of our experts.
