Although much had been leaked, today’s announcement on inheritance tax (IHT) on estates and trusts with qualifying businesses, farms and farmland will come as a shock to many. More trusts and estates will see increased exposure to IHT from 6 April 2026.
Currently, relief is available up to 100% on qualifying businesses (such as shares in unquoted trading companies) and agricultural assets, effectively exempting many businesses, farms and farmland from IHT.
The Chancellor has proposed that combined APR and BPR reliefs at 100% will only be available up to the first £1 million of agricultural and/or business property, with 50% relief on any excess. This means an effective rate of IHT on death of up to 20% on qualifying assets over £1 million.
The £1m allowance will cover the following transfers:
- Chargeable lifetime transfers, typically when property is settled into trust;
- Any lifetime transfers in the seven years before death; and
- Property in the estate on death.
These measures also affect most trusts holding business and/or agricultural assets that may have been settled to provide asset protection and allow the efficient transfer of landed estates.
Trusts settled before 30 October 2024 will be entitled to a full £1 million allowance. However, trusts settled on or after 30 October 2024 may have to share the £1 million allowance if the settlor has settled multiple trusts.
These rule changes will not affect current or future entitlements to nil rate bands, transferrable nil rate bands and inter spouse exemptions. The seven year Potentially Exempt Transfer (PET) rule on lifetime gifts also remain unchanged.
Farmers and business owners may, subject to anti-avoidance rules and potential capital gains tax (CGT), consider giving away or transferring assets into trust to avoid an increased IHT charge on death.
However, even though the changes take effect from 6 April 2026, there is a catch: any lifetime transfers made on or after 30 October 2024 will be subject the £1 million allowance if the donor dies after 5 April 2026 and within seven years of the gift.