What does HMRC’s consultation on APR and BPR tax changes reveal?

HMRC is consulting on the government’s plan to cut inheritance tax reliefs for agricultural property (APR) and business property (BPR) revealed at the Autumn Budget. We now have further detail of the announcements that provoked so much protest and anxiety, especially from the farming sector.

The latest information contains some useful clarifications and signals planning opportunities for some, but concerns remain, offering limited relief to many people affected by the changes.

For more than 30 years, APR and BPR have allowed farms and businesses to pass down families largely tax-free on an owner’s death. The rationale for the reliefs was to avoid the break-up of assets that play a vital role in UK economy and the nation’s food security. But that policy is changing, in an effort to increase tax revenue.

However, the amount this measure will raise is uncertain and a recent fiscal impact report commissioned by Family Business UK suggests the reforms may damage public finances and livelihoods, leading to job cuts and reduced investment by family firms.

What’s changing?

From April 6 2026, 100 per cent relief from IHT will be limited to £1mn per person (or per trust) for the combined value of all their qualifying agricultural and business property. Any excess value will only attract 50 per cent relief, incurring 20 per cent IHT on death (or 3 per cent every 10 years for trusts). As a result of these changes, we are likely to see the fragmentation of land and businesses, due either to post-death sales or pre-death planning.

Planning is likely to involve the division of qualifying property among families and trusts to gain multiple £1mn allowances. The consultation proposes an extension to anti-avoidance rules to prevent a valuation advantage by spreading ‘related’ property among several trusts, but it confirms that 100 per cent relief can nevertheless extend beyond a single £1mn allowance by lifetime giving to other individuals or into trusts.

The success of that planning may depend upon several factors, not least survival for seven years from any gift and the gift recipient holding the property for at least two years after that. Life insurance may be needed to protect against a premature death, but the premiums will need to be funded and may not be a deductible business expense.

Helpfully, though, the consultation confirms that the new £1mn allowance will refresh every seven years for individuals (a bit like the IHT nil-rate band) so that gifting could potentially be repeated over time, for example with £1mn of qualifying property passing tax-free by a lifetime gift and a further £1mn passing on death more than seven years later.

Unhelpfully, however, the ‘allowance’ will not be transferable to a surviving spouse (unlike the nil-rate band), so property will have to be left to others (or into trust) to make use of the relief. Restricting transferability of this £1mn allowance between spouses feels like a missed opportunity, as allowing transfer would be a simple way of ensuring couples can shelter £2mn of value.

There are likely to be methods available to achieve the effect of transferability, but the complexity and cost of will drafting required may be beyond the reach of many.

More info on trusts

HMRC’s consultation also sheds more light on how the changes will apply to trusts. Trusts are a common holding structure for businesses and farms, for their flexibility to provide for family members without necessarily handing over control, and with no immediate IHT charge on set up, running or on distribution under current rules. Full relief will continue to be available for trusts with APR and BPR on tax charges arising before April 6 2026.

After that date, a £1mn trust allowance is also going to give trustees of discretionary trusts 100 per cent relief from their IHT charges on qualifying property and 50 per cent relief thereafter. This trust allowance can also refresh every 10 years, that is, when IHT is generally payable by trustees.

Not all trusts will have a full £1mn allowance, however. Certain ‘life interest’ trusts will share the income beneficiary’s allowance from April 6 2026 and the precise allowance for discretionary trusts will depend on when it was made.

Trusts containing qualifying property and made pre-Budget will each have a full £1mn allowance; but post-Budget trusts made by the same person will only have a single trustee allowance (to be allocated chronologically).

In effect the government wants to limit the number of new trusts being made, but trusts should provide some scope for planning over the next year and beyond and are likely to be popular as the £1mn of value they can shelter may create a ‘use it or lose it’ situation.

Preparing the funds

Inevitably, however, it will be difficult for business and agricultural property to escape completely from IHT in future. Funding that tax will be a problem for many. HMRC has confirmed that the cost can be spread over 10 years on an interest-free basis on all property that qualifies for APR or BPR. This is a welcome announcement but does make the charge feel akin to an annual wealth tax that needs to be funded.

For UK businesses that can often be capital rich but cash poor, planning for this annual payment will be challenging. Deceased estates may not need to sell everything to fund the tax if they can find 2 per cent each year for 10 years. Trustees will effectively pay 0.3 per cent per year on a value reassessed every 10 years if they opt for instalments.

Businesses will need to budget for the payments in their financial strategies and the overall effective tax rates may be higher if dividends or disposals are needed for liquidity.

Professional valuation advice will be required regularly, whereas previously valuations were rare, as no tax was at stake. The cost of these valuations and assessing what value can sit within the £1mn personal or trust allowances will create significant complexity for business owners and farmers to cope with.

The consultation ends on April 23, although it may be some time before legislation emerges. Until then, business owners and farmers should urgently review wills to ensure they are sufficiently well drafted to capture the proposed £1mn reliefs and consider their wider planning options.

Lifetime gifts and movement of property into and out of trusts are likely to be common. But there are traps for the unwary, particularly where the owner retains a benefit in the property.

Opportunities maybe limited for elderly farmers who, having previously been advised not to make gifts because relief will apply at 100 per cent, now suddenly to find that it would have been better to make gifts years ago.

As always, the tax treatment should rarely dictate the direction of travel completely and it will be crucial to balance fragmentation against the benefits of maintaining assets under single ownership.

One wonders whether the incentive to plan for these reforms by encouraging division of ownership will lead to the break-up of businesses and farms as they become ungovernable in multiple ownership.

As we move into much more complex territory, careful planning and professional advice will be key.

This article was first published by the FT Adviser in April 2025