The UK government has outlined proposed changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) in a policy statement, but as of now, no draft legislation has been issued. The details will be crucial, and landowners and rural businesses should stay vigilant as developments unfold. The Open Consultation, which began on 27th February 2025, will run until 23rd April 2025, with draft legislation expected much later in the year. Any changes will apply to transfers made on or after 6th April 2026—leaving a potentially tight window for planning opportunities.
Key changes and considerations
Unused allowances will not be transferable
One of the more concerning aspects of the proposal is that any unused allowance will not be transferable between spouses. This has significant implications for inheritance tax (IHT) planning and succession strategies.
Maximum relief available
The good news is that APR, BPR, the Nil Rate Band (NRB), and the Residence Nil Rate Band (RNRB) will continue to be available. If fully utilised, they provide up to £3 million in relief. However, the proposed new structure means that APR and BPR assets above £1 million will only qualify for relief at 50%, rather than the full 100% relief currently available.
The complexity of the RNRB
The RNRB remains highly complex, with various qualifying criteria including:
- Qualifying residence
- Qualifying beneficiary
- Qualifying interest
Additionally, the RNRB tapers away for estates exceeding £2 million in value, reducing by £1 for every £2 above this threshold. Interestingly, lifetime gifting does not affect the RNRB in the same way as the NRB, which may incentivise ‘death bed’ gifting.
AIM portfolios and relief capping
For those who have invested in AIM shares as part of their IHT planning strategy, the consultation paper confirms that relief will be capped at 50%, regardless of the value of the portfolio. If an AIM portfolio is worth £1 million, only £500,000 will qualify for 100% relief, with the remainder taxed at 40%. However, relief on AIM portfolios does not appear to deplete the new £1 million allowance.
Lifetime gifting and Potential Exempt Transfers (PETs)
The NRB is affected by lifetime gifting, and most individuals are familiar with the seven-year rule. Under the new proposals, from 6th April 2026, PETs will be subject to the £1 million allowance. If the donor dies within seven years of making a PET, relief will apply at a rate of 50% on the excess value, with the remaining subject to the 40% IHT rate (unless tapered).
Transitional provisions
- PETs made before 30th October 2024 will remain under the current regime.
- PETs made between 30th October 2024 and 6th April 2026 will be subject to the new £1 million allowance, even if the donor dies after April 2026.
- If a PET fails, the failed portion will be set against the £1 million allowance in the same way as NRB allowances currently operate.
Gift With Reservation of Benefit (GWROB) and planning strategies
Tax planning can be significantly undermined if a gift triggers a GWROB. This is particularly relevant for the family home, but two main strategies can mitigate this risk:
- Paying commercial rent under a lease with regular rent reviews (though this introduces potential income tax and capital gains tax (CGT) concerns for beneficiaries).
- The Pre-Owned Assets Tax (POAT), a levy to IHT via self-assessment, which avoids income tax disadvantages but may still create CGT issues due to the lack of Principal Private Residence (PPR) relief.
Capital Gains Tax (CGT) and Trusts
Historically, lifetime gifting of APR/BPR assets was not considered best practice due to the availability of a CGT uplift on death. Under the new rules:
- PETs will trigger a chargeable transfer for CGT purposes which may result in an immediate CGT charge, unless holdover relief applies.
- Gifts to discretionary trusts may be preferable, as they qualify for holdover relief. However, these transfers could be subject to an immediate 20% IHT charge, with further IHT due if the donor dies within seven years.
- The combination of CGT and IHT on lifetime gifts creates an effective ‘double taxation’ scenario, complicating estate planning.
Strategic considerations for different age groups
Using a traffic light system, we can assess how different age groups may respond to these changes:
- Green (under 60): Likely to adopt a ‘watch and wait’ strategy or implement gradual lifetime gifting.
- Amber (60–80): Most likely to engage in structured lifetime gifting to maximise relief.
- Red (80+): May still consider lifetime gifting but should at least structure ownership to utilise both full allowances.
The role of life insurance
As these changes increase potential tax liabilities, life insurance is expected to become an important tool for funding IHT liabilities. However, the cost of life insurance remains high, and how the industry adapts to this new landscape remains to be seen.
IHT instalment option
The proposed instalment option allows IHT to be paid over ten years in equal interest-free instalments—providing a valuable concession for families needing to manage cash flow.
The impact on rural business and farm diversification
Farms have long been forced to diversify to remain viable, and further diversification may be necessary if these proposed changes take effect. However, holiday lets, a common diversification strategy, will suffer a double hit:
- From 6th April 2025, holdover relief will no longer apply to holiday lets.
- The CGT rate for holiday lets will rise from the concessional 10% to the standard 24%.
Seeking regular advice
With so much uncertainty and complexity surrounding these changes, rural landowners and business owners should seek regular professional advice to stay ahead. The coming months will be critical in determining the final form of the legislation, but proactive planning now could make all the difference in preserving family wealth for future generations.
How Moore Barlow can help
Our rural solicitors are known for being approachable professional and pragmatic, with clear communication and specialists in explaining complex areas of rural law to our clients. We can arrange meetings at your home, place of business or online, whatever suits you best.
