I am a farmer owning an agricultural estate worth several million. How will the inheritance tax changes announced in the Autumn Budget affect me and can I do anything to minimise the extra tax my estate may need to pay?
By way of background and as explained in the article “Autumn Budget 2024: inheritance tax and capital gains tax planning points“, from 6 April 2026 it is proposed that business property relief (“BPR“) and agricultural property relief (“APR“) for inheritance tax (“IHT“) purposes will be restricted in their scope. Prior to the Autumn Budget 2024, BPR and APR qualifying assets received IHT relief at 100%. From 6 April 2026, only the first £1 million of BPR and APR assets combined will qualify for IHT relief at 100%, with any amount over this £1 million cap attracting IHT relief at 50% only. This means a marginal IHT rate of 20% for farmers if their farming assets exceed £1 million on death.
It is easy to see why there are such strong feelings amongst farmers against this policy. As you may know, a combine harvester like a John Deere X9 1100 can cost over £850,000. Add a couple of tractors worth £100,000 each and this can take you over the £1 million BPR/ APR cap before the value of any farmland is factored in.
Furthermore, the £1 million APR and BPR cap is not an allowance transferable between spouses and civil partners (“spouse” hereafter refers to either). So, unless positive action is taken following the first death and the £1 million allowance “banked” then, on the second death the survivor’s estate will only have a £1 million allowance available (without the benefit of the £1 million allowance that the first spouse or civil partner may have been entitled to).
In terms of potential planning points, I would not recommend taking any significant action until we have further details on the proposed changes as we do not yet have draft legislation and the changes are subject to consultation. That said, I do not expect the headline announcements to alter. Points to start considering, however, are as follows.
- If IHT planning takes place following the death of the first spouse, it may be possible for spouses to secure up to £3 million free of IHT through a combination of both spouses’ APR/BPR allowances, the IHT nil-rate band, and the IHT residence nil-rate band.
- Each spouse’s Will should be drafted efficiently from an IHT perspective to help secure the maximum amount of IHT relief.
- Farmers might consider the use of partnerships. For example, if spouses go into business with their two children, each partner will have a £1 million APR/BPR allowance. The downside is that once partnership assets are owned by children, there are asset protection issues to consider to avoid assets being vulnerable to claims by a divorcing spouse or creditor in bankruptcy.
- Trust structures could potentially be used to shelter up to £1 million of APR/BPR qualifying assets so that the assets are not subject to IHT on the death of the farmer(s). Spouses could, for example, settle £1 million each into trust. There are complexities here, however, as there are IHT avoidance rules that need to be carefully considered. Furthermore, it is not clear whether, if a person settles £1 million of APR/BPR assets into a trust, and they survive by more than seven years, that person’s “allowance” will be reset. More detail is expected in early 2025 as to how the allowance interacts with trusts.
Whilst the headlines are gloomy for farmers, with advice and planning it is possible to mitigate the effects of what appears to many to be a poorly considered policy.
You can read our Autumn Budget analysis across the main areas affecting UK private clients in the following articles.
- Autumn Budget 2024: inheritance tax and capital gains tax planning points
- Autumn Budget 2024: school fees and education trusts
- Autumn Budget 2024: property taxes
This publication is for general information only and does not seek to give legal advice or to be an exhaustive statement of the law. Specific advice should always be sought for individual cases.
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