Agricultural property relief (APR) and business property relief (BPR) saw a significant reform in the Budget announcement. The current 100% rate of relief will only extend to the first £1 million of combined agricultural and business property in excess of all existing nil-rate bands and exemptions. The rate of relief for qualifying property in excess of £1 million has reduced to 50%. In addition, in all circumstances for shares designated as “not listed” on a recognised stock exchange such as AIM, the rate of business property relief available will reduce from 100% to 50%.
The Government confirms it will extend the existing scope of agricultural property relief from 6 April 2025 to include land managed under an environmental agreement.
Assets automatically receiving 50% relief will not use up the £1 million allowance and any unused allowance will not be transferable between spouses and civil partners. The allowance covers property in the estate at death, failed potentially exempt transfers in the seven years before death, and chargeable lifetime transfers where there is an immediate lifetime charge. To prevent forestalling, the new rules will apply for lifetime transfers on or after 30 October 2024 if the donor dies on or after 6 April 2026.
The £1 million allowance extends to assets held in trust for the purposes of 10 year and exit charges. For all existing trusts, each will have a £1 million allowance on the value of qualifying property to which 100% relief applies when calculating at each chargeable event. However, the Government intends to introduce rules to ensure that the allowance is divided between trusts where a settlor sets up multiple trusts on or after 30 October 2024. The Government will publish a technical consultation early next year of the detailed application of the policy.
Estates will continue to benefit from the nil-rate band (£325,000) and residence nil-rate band (£175,000) and these thresholds have been fixed for a further two years, until 6 April 2030. The residence nil rate band at which taper commences also remains fixed at the current level of £2 million. For clarity, there has been no change to other exemptions, such as spousal exemption, so spouses can still inherit the deceased spouse’s unused nil rate bands, and transfers to individuals more than seven years before death will continue to fall outside the scope of Inheritance Tax.
Inheritance Tax – Pensions
From 6 April 2027, unused pension funds and death benefits payable from a pension will no longer be exempt for inheritance tax purposes but will instead be brought into a person’s estate.
For those whose estates are currently around £2 million, the inclusion of pensions in the value of the estate could cause tapering of the residence nil rate band, as well as an increase in taxable assets. In a worst-case scenario, the effective Inheritance Tax rate on previously exempt pension funds could be as high as 60%.
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