4th March 2025

The government opens its consultation on agricultural and business property reforms

Louise Garrett

Associate

T +44 (0)20 7412 5155

Katie Martin

Senior Associate

T +44 (0)20 7412 5063

On 27 February 2025, the government opened its technical consultation on the changes which will affect the inheritance tax liability of trusts containing assets which qualify for agricultural property or business property relief where the value of those combined assets exceeds £1m from 6 April 2026.

A couple of key points on which to take stock:

The £1m allowance for individuals on the combined value of agricultural or business property which will qualify for 100% relief will not be limited to a lifetime allowance. The allowance will refresh every 7 years and operate like the nil rate band does when it applies to lifetime charges and chargeable transfers on death. The implication is that if the transferor dies within 7 years there will be a failed potentially exempt transfer which may reduce the £1m allowance applicable on death.
For trustees, there will be a £1m allowance on the combined value of agricultural or business property which will qualify for 100% relief settled into a relevant property trust. Agricultural and business property held in that trust will benefit from 100% relief up to a value of £1m on each 10-year anniversary charge.
Whichever rate of relief is received on agricultural or business property, there will be an option to pay inheritance tax on those assets by equal annual instalments over 10 years interest-free.

The consultation, which closes on 23 April 2025, seeks views on transitional provisions for transfers made before 6 April 2026 and the introduction of an anti-fragmentation rule for trust property settled on or after 30 October 2024. The paper was highly anticipated and will no doubt add to the public conversation on the proposed reforms.

At Autumn Budget 2024 the government announced changes to agricultural property relief and business property relief from Inheritance Tax from 6 April 2026. These changes will have an impact on the Inheritance Tax payable by certain trusts comprising of property that qualifies for agricultural property relief or business property relief where the value of that property exceeds £1 million. The government is consulting on this aspect to ensure the rules work as intended.