Changes to Agricultural Relief (AR) and Business Relief (BR), first announced in the 2024 Autumn Budget, are now in effect.
The measures place a cap on the Inheritance Tax (IHT) relief you can receive when passing on qualifying agricultural and business assets. Negative reaction to the plans in certain quarters led the government to row back on the original announcement, but the changes that came into force from April 2026 remain significant.
They could require you to revisit your estate and legacy plans, and professional financial advice could prove invaluable.
Keep reading to find out how.
Changes now in force cap the value of assets on which you can receive 100% Inheritance Tax relief
As a high net worth individual (HNWI), your business assets – and potentially your agricultural assets too – could be significant. High levels of wealth can make for complex estate planning and legacy arrangements, incorporating carefully designed trusts, meticulously timed insurance policies, and multiple other avenues.
One upcoming change that could impact your legacy planning is that unused pensions and some pension death benefits will fall within the scope of IHT from April 2027. Another change is the introduction of a cap on IHT relief on agricultural and business assets.
Pre-April 2026, you were able to claim up to 100% IHT relief on qualifying assets. If you hold large business or farming interests, this relief likely played an important role in your estate planning.
The rules recently put in force place a cap on the value of the assets to which this relief can apply.
When announced, the cap was to be placed at £1 million, but it was later increased to £2.5 million. This limit applies per individual and is a combined amount for agricultural and business assets.
It is, though, worth noting that any unused allowance is transferable to a surviving spouse or civil partner on death, meaning that as a couple, you can effectively pass on up to £5 million in relief-qualifying assets with no IHT to pay.
Qualifying assets that exceed the threshold will receive a reduced rate of relief, set at 50%. The standard rate of IHT is 40%, so you will be taxed at 20% on assets above the cap.
Simple strategies and professional advice could help mitigate the impact of the changes
Gifting and potentially exempt transfers
Gifting remains a tax-efficient strategy to mitigate a potential IHT bill. With the new cap in place, it could play an even more important role in your plans.
Existing rules around potentially exempt transfers (PETs) remain in place. This means that you can give a gift of any value and it will be free of IHT if you survive for seven years after the date the gift is made. Full IHT (40%) is usually payable on the gift if death occurs within three years and your nil-rate band has been used up, with tax payable on a sliding scale, known as taper relief, on death between three and seven years.
The so-called “seven-year rule” means that gifting earlier in life could prove tax-efficient, giving you the best chance to survive the seven years and see your gift become IHT-free. You might use the government’s changes to AR and BR as the catalyst to revisit your current plan and begin gifting now.
Life insurance held in trust to cover a potential bill
You might have read articles from us before about how HNWIs can use life insurance to cover an IHT liability. This could be a single policy, but where the liability is large, it could potentially be more suitable to have multiple term-assurance plans aligned to cover death at different ages in a cost-effective way.
If the AR and BR changes could lead to a rise in your potential IHT bill, you might need to revisit your life insurance plans to ensure any additional liability is covered.
Advice could help to ensure everyone in your family or business is on the same page
The above strategies can be complex to implement, so professional financial advice is recommended.
Communication will be key when making gifts to ensure all parties understand the size and purpose of the gift and the responsibility associated with taking on that gift. You’ll need to think about:
- Whether gifting business assets will disrupt your business or farm operations
- Whether multiple family members and business partners might have a claim to the gift.
Conversations might also include the potential for a Capital Gains Tax (CGT) bill and ways to mitigate this. You might consider staggering the gifts across multiple tax years to keep CGT low, for example.
Get in touch
The points raised in this article are all potential planning areas, however there are a wide range of options to consider depending on your circumstances and goals. Seeking advice is a great place to start.
With the AR and BR changes now in effect and pension IHT changes due from the start of 2027/28, now could be a good time to revisit your estate planning, especially as an HNWI.
We can help you find strategies to mitigate the impact of these changes on your IHT bill, so get in touch. Contact us online, or call 020 7400 4700 today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief. Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.
The Financial Conduct Authority does not regulate estate planning, cashflow planning, tax planning, or trusts.
