A welcome Christmas present for farmers and business owners?

As business owners, farmers and their advisers started to wind down for the Christmas break, the Government made an announcement on Tuesday 23 December that may provide some of them with a little extra festive cheer.  The new 100% inheritance tax (IHT) relief allowance for individuals making transfers of qualifying business or agricultural property will be £2.5 million from 6 April 2026 rather than £1 million, as originally announced.

What we know 

Taken together with the announcement made in November's Budget that the allowance will be transferable between spouses and civil partners, including where one of a couple has already died, this will enable business owners and farmers to pass on up to £5 million of their qualifying property free of IHT.  Assuming both nil rate bands (currently £325,000) are also available, this could potentially increase to £5.65 million.  Any qualifying property that exceeds the available 100% allowances will attract relief at 50%, and be taxed at half the standard rate of IHT - 20% rather than 40% on death.

Of course, this change comes at a point at which many of those potentially affected have already sold or transferred property, or otherwise taken steps to mitigate the potential cost to their estates.  In some cases, they might not have chosen to take such steps if they had known that the allowance would be £2.5 million and transferable between spouses and civil partners.  While genuine concerns about potential suicides of farmers ahead of the 6 April deadline are likely to have influenced this announcement, tragically, it comes too late for some.  

Certainly, this is a welcome development and the government should be commended for responding to recommendations made by professionals and industry bodies, rather than sticking rigidly to their original plans.  However, the need for such piecemeal, last-minute changes could be avoided in future if the government consulted on any significant plans for tax changes ahead of announcing detailed measures.

What we don't know

While the government press release makes it clear that the individual allowance for 100% relief will be £2.5 million when property passes on the death of the owner, lifetime transfers are not specifically mentioned.  In fact, most of the references in the government press release are to “estates” rather than to individuals.  It may be that a lifetime transfer into trust, which would otherwise be chargeable to IHT at 20%, will attract 100% relief up to the new individual threshold, but this will require confirmation when the amended Finance Bill is published in the new year.

Also not yet clear is whether the trustees' allowance for 100% relief for qualifying trust property will be set at £2.5 million.  IHT charges on trust property include ten-year anniversary charges of up to 6% of the value of the trust fund on each ten-year anniversary of its creation, and exit charges when property leaves the trust, also of up to 6% of the value of the property leaving. 

When should we know more and what to do now

The press release indicates that the changes to the Finance Bill will be made in January, and it should be clear then whether the £2.5 million allowance will be available on lifetime transfers or for trust tax charges, or only where property is transferred on death.

In the meantime, anyone who owns qualifying agricultural or business property should consider whether the increased allowance may affect any planning they have put in place ahead of the changes in April 2026.  For those still in the planning stages, the recent developments may influence their decision to make transfers or, if relevant, establish trusts or other structures, before the April deadline.

If you would like advice on how and whether the new announcement or the changes to BPR and APR more generally may affect you, please get in touch with your usual Howard Kennedy contact, or a member of our Private Client team.   

Nothing in this client note constitutes legal advice to any person.