In the Spring Budget 2023, it was announced that, from 6 April 2024, the geographical scope of inheritance tax (“IHT”) agricultural property relief (“APR”) and IHT woodlands relief will be limited to agricultural property or woodlands situated in the UK only and will no longer include agricultural land in the European Economic Area (“EEA”), the Channel Islands and Isle of Man, or woodlands in the EEA.
Similarly, it was also announced that the definition of a charity for UK tax purposes would be changed, so that only charities located in the UK can qualify for charitable tax reliefs – not those located in the European Union (“EU”) or EEA.
Legislation to implement these changes is included in the Finance (No. 2) Act 2023. These developments have been necessitated by Brexit.
European agricultural land and woodlands
APR can reduce IHT on qualifying agricultural land by 100% and is a valuable relief. Woodlands relief defers the IHT on the value of timber in the relevant woodland area until the timber is sold or given away.
The above changes to the scope of APR and woodlands relief impact individuals with affected agricultural land or woodlands under their UK Will. IHT relief will no longer apply to these assets and the estate will need to fund the resulting IHT on death. Where the UK Will includes a “nil-rate band discretionary trust”, this change in IHT position may automatically alter who receives the land/ woodlands under the Will. Affected individuals are advised to review their Wills to make sure the land/ woodlands pass as intended. An amended Will may be needed.
European charities
With effect from April 2024 (although it can be 15 March 2023 for some EU/ EEA charities), UK tax relief will no longer apply to EU/ EEA charities. This may impact individuals who have named an EU/ EEA charity in their Will as the gift to the charity will be subject to IHT on death. In addition, where the gift to the EU/ EEA charity was included to enable the overall estate to qualify for the reduced rate of IHT (36%), this will no longer be the case and the standard IHT rate (40%) will apply to the whole estate.
If your Will includes affected agricultural land or woodlands, or an EU/ EEA charity, please contact us for further information on whether you may need to review your Will.