- 04 Dec 2024
- •
- 4 min read
Autumn Budget 2024: Agricultural and business property relief reforms
As Sir Kier Starmer predicted, the budget announcements were indeed “painful”, delivering a distinctly Labour agenda. It hasn’t come with any less of a blow for our rural and business owner clients whose families may feel the impact for generations.
The press, unsurprising, is having a “field day” (pun intended) with dramatic headlines referring about a so-called “tractor tax” and the looming threat of protests.
Following the shock announcements, further details have now emerged. Here is a snapshot of the pre and post budget position in relation to Inheritance Tax (“IHT”), with a particular focus on Agricultural Property Relief (“APR”) and Business Property Relief (“BPR).
| Pre-Budget | Post-Budget | |
| Nil-rate bands and allowances | ||
| Nil-rate band (£325,000) and Residential Nil Rate Band (£175,000) | Frozen until April 2028 | Frozen for a further 2 years until April 2030 |
| £2,000,00 taper threshold for Residential Nil Rate Band | Frozen until April 2028 | Frozen for a further 2 years until 5 April 2030 |
| BPR and APR allowance | None | £1,000,000 of combined business and agricultural propertyAllowance is pro-rated between agricultural and business propertyNot transferable |
| Agricultural Property Relief | ||
| Agricultural Property(excluding assets which formerly only qualified for 50% relief such as pre-1995 Agricultural Holdings Act Tenancies) | Qualifies for APR at 100% | The first £1million – 100% relief Any value above £1million – 50% relief (i.e. taxed at 20%) |
| Agricultural Property where relief is restricted to 50% (such as pre-1995 Agricultural Holdings Act Tenancies) | Qualifies for BPR at 50% | Qualifies for BPR at 50% (does not use up the new “allowance”) |
| Business Property Relief | ||
| Business Property(excluding assets which formerly only qualified for 50% relief such as assets used in (but not owned by) a trading business) | Qualifies for BPR at 100% | The first £1million – 100% relief Any value above £1million – 50% relief (i.e. taxed at 20%) |
| Business Property where relief is restricted to 50% such as assets used in (but not owned by) a trading business) | Qualifies for BPR at 50% | Qualifies for BPR at 50% (does not use up the new “allowance”) |
| AIM Shares | Qualifies for BPR at 100% | The first £1million – 100% relief Any value above £1million – 50% relief (i.e. taxed at 20%) |
The detail
It seems that the new £1m allowance will apply to assets which formerly qualified for 100% relief but not those assets which formerly qualified for 50% relief. In respect of those latter assets therefore, the reforms will not affect the relief which otherwise would have applied pre-budget. Such assets are, for example, pre-1995 Agricultural Holdings Act Tenancies (for APR) and assets which are used (but not owned) by a trading business (for BPR).
The allowance is for combined agricultural and business property and is pro-rated between the two. This will have interesting results and will need careful consideration particularly when succession planning and where the division of agricultural and business assets in an estate are not equal.
The allowance is not transferable between spouses which, again, needs careful consideration when will writing and succession planning.
The allowance will apply to transfers in lifetime as well as on death and it is not currently known whether it will “refresh” every 7 years like the nil-rate band or whether it is a lifetime and death allowance only.
The announcements have confirmed that APR will be available from 6 April 2025 on land managed under an environmental agreement which is good news for some.
Trusts
The new allowance will be available to trusts but, unsurprisingly, there is limited detail with a technical consultation expected in early 2025 establishing how this will work. This will be welcome by practitioners.
We do, however, know that each pre budget trust will have their own £1m allowance whereas those settled post-budget which share the same settlor will also share the allowance. This is a lost opportunity for those wanting to consider tax planning pre-5 April 2026 but fortuitous for those who already own business assets and agricultural property through multiple trusts.
What are the other headlines?
The other headline changes affecting our clients and their estates as are follows:
- Unused pension funds and death benefits will be taxed in estate and subject to IHT at 40% from 6 April 2027
- For those who are non-UK domiciled, the remittance basis of taxation will be abolished from 6 April 2025 with a residence-based regime replacing it. Individuals opting in will not pay UK tax on foreign income and gains for the first 4 years of residence. There will also be a residence-based system for IHT.
- Main rates of Capital Gains Tax (“CGT”) have increased to 18 and 24% (in line with residential property disposals). This is effective immediately.
- The rate of CGT for Business Asset Disposal Relief and Investors Relief will increase to 14% from 6 April 2025 and again to 18% from 6 April 2026. Investors relief lifetime limit reduced to £1m for disposals after 30 October 2024.
- From 31 October 2024 SDLT surcharge increases from 3% to 5%
- VAT of 20% will be applied to private school and boarding fees from 1 January 2025, while the charitable relief for English business rates will be withdrawn from 1 April 2025.
What next?
For some business owners and farms, it is worth considering lifetime gifting before 5 April 2026 to secure relief at 100%. It should be noted that anti-forestalling rules will mean the new rules will apply on the gift rendering the planning unsuccessful if the donor dies within seven years on or after 6 April 2026. Lifetime gifting is therefore only an attractive option on deathbed planning or for younger donors more likely to survive the 7-year period.
It is not clear whether pre-budget lifetime gifting which fails due to a death within 7 years will fall within the new rules or the existing, more generous rules.
All individuals owning businesses and/or agricultural assets should review their wills over the next 18 months with the most obvious recommendation being to secure the £1million threshold. Legacies of relievable assets in Wills to chargeable beneficiaries on first death should be checked carefully to ensure they are not subject to a tax charge which might otherwise be covered by spouse exemption.
Our Tax and Succession Team are here to advise on what steps can be taken now to mitigate your IHT exposure and assist with succession planning.
Disclaimer
This information is intended for general informational purposes only and does not constitute legal advice. We recommend seeking professional advice before taking any action on the information provided. If you would like to discuss your specific circumstances, please feel free to contact us on 0800 2800 421.
