Business property relief and agricultural property relief
The UK Government’s budget reforms to Agricultural Property relief (APR) and Business Property Relief (BPR) will bring significant changes for family owned and rural businesses: potentially leading to a considerable shift in how many approach succession planning.
The new combined cap of £1million on these reliefs takes effect from April 2026. Estates exceeding this threshold will see inheritance tax (IHT) applied at an effective rate of 20% on business and agricultural assets in excess of this cap.
There are clear implications for succession planning here to manage future IHT liabilities for those planning to pass businesses down to the next generation. With many farms and family businesses worth in excess of £1million, failing to properly plan could end up in the business having to be sold following a death to pay taxes due.
The key message is not to panic, and take professional advice.
The government has announced the new rules will apply for lifetime transfers on or after 30 October 2024 if the giftor dies after 6 April 2026 as a way to stop people from taking advantage of the regime before the change happens. We also expect a technical consultation will follow yesterday’s announcement in early 2025 and this detail will be important to progressing detailed succession plans.
Pensions, death benefits and IHT
Pensions, previously excluded from IHT, will form part of the taxable estate from April 2027.
For many people, their pension is one of the most valuable assets they have and they’ve long been seen as a useful tool for passing wealth to the next generation, free from IHT. What now, then, for those who have approached planning for their retirement based on the current rules?
Under the new regime, the total value of pension pots, death benefits and other assets over the existing thresholds (£325,000 nil rate band and £175,000 residence nil rate band available to those passing a house to a direct descendent), aside from exemptions, will be taxed.
Again, the government has announced a period of technical consultation for the next 12 weeks until 22 January 2025. This will inform the legislation introduced to implement these changes.
There are significant succession planning implications and it’s crucial people concerned review their wills and consider whether their estate may be exposed to IHT.
You’ll need to consider how responsibility for paying this tax will impact your beneficiaries, how your executors will obtain funds to meet this liability and whether updating your gifting strategy might be an effective way to legally mitigate future tax obligations.
Conclusion
Implications will be widespread and will take some time to be realised, but fundamentally it makes sense to seek professional advice and review your succession plans.
Our private client experts can help, please feel free to
JP Campbell
Joint managing partner
Leading the private client team in our Inverness office, JP specialises in inheritance tax, business succession, estate planning, executry administration, asset protection, trusts and supporting adults with incapacity.
He volunteers with the Highland Field Sports Fair, and is a co-founder and trustee of One Feeds Two. This charity teams up with restaurants and other food companies to donate, for every meal they sell, a school meal to a child living in poverty.
Posted: October 31st, 2024
Filed in: Private client, Rural, Insights