Major changes have been made by the Chancellor in the recent budget which impact the way in which farms and businesses can be passed to the next generation.
Current rules, before the 2024 Budget:
Business property relief
Where the conditions are met, 100% relief from Inheritance Tax (‘IHT’) is available for unquoted shareholdings and interests in a business (whether owned as a sole trader or in partnership) located anywhere in the world. 50% relief from IHT is available for shares in a quoted company (where you have control of the company) and also for assets, such as land and buildings, used by your partnership or company.
Generally, you must have owned the shares or the business for at least two years prior to the gift (whether made during lifetime or on death). Certain types of activities and investments are excluded from relief, for example it’s not available if the business or company’s activities consist mainly in dealing in securities, stocks or shares, land or buildings, or making or holding investments.
Agricultural property relief
Where land in the European Economic Area, including the UK (limited to the UK only from 6 April 2024) has been occupied for the purposes of agriculture, the land and any ancillary buildings may benefit from relief from IHT at 100% or 50%, depending on who farms the land and how long the land has been owned.
Relief is given on the agricultural value of the land, which is taken to be the value of the property if it were subject to a permanent restriction prohibiting non-agricultural use. This may be lower than the full market value of the property (for example, where there is planning permission to build houses on the land).
However, business property relief may also be available, for example if you own the land and farm as a business yourself. This can be useful where the full market value of the land exceeds the agricultural value (agricultural property relief is given first).
Bad news from the Budget:
From 6 April 2026, the current 100% rate of relief will continue but only for the first £1 million of combined agricultural and business property for individuals and Trusts.
Shares that are designated as ‘not listed’ on the stock exchange, such as AIM shares, will now only attract a relief of 50% rather than 100%
The rate of relief will be 50% for such assets above the £1 million threshold and for all ‘not listed’ shares.
The existing 50% rates of business and agricultural relief will continue where they currently apply (e.g. to farmland let before 1 September 1995) and will not be affected by the new allowance.
For certain trusts that were established before 30 October 2024, the £1 million allowance will apply to each trust. The £1 million allowance will be divided between trusts where a settlor sets up multiple trusts on or after 30 October 2024.
This means that many of the previous estate planning strategies are going to be ineffective. It is therefore important to take advice on the best way of arranging your financial affairs to reduce the Inheritance Tax liability of your business and estate.
We can also assist with alternative ways to reduce IHT for your family, including lifetime and Will Trust planning and we would be pleased to discuss these with you.
Contact Nikki Perryman in our Wealth Management team on 01483 567676 or nperryman@cheyneygoulding.co.uk
