Inheritance Tax (IHT): Potential changes to Business Property Relief (BPR) and Agricultural Property Relief (APR)

Inheritance Tax (IHT) is a tax on the estate of someone who has died and includes their property, money and possessions. The total amount of tax collected from IHT has been growing steadily since 2010 and is currently collecting a record amount for the UK Government. 

Whilst there has been speculation that the tax would be abolished this does not seem likely and instead, we may see changes over the coming years aimed at increasing the amount of tax collected or focusing it on certain types of estates.

Recent commentary and speculation about changes to IHT have focused on three important IHT reliefs, being:

• Agricultural property relief (APR),
• Business property relief (BPR),
• The exemption from IHT for most pension savings.

In this article, we outline what any changes could mean and the things to think about if your estate may be impacted.

Both APR and BPR are important and valuable reliefs which can exempt (in whole or in part) the value of qualifying assets from a charge to IHT.  As the name suggests, APR is given to assets used for the purposes of agriculture.  In our article here we provide details on BPR and what assets this can apply to.

Each of these reliefs are currently uncapped, and recent speculation has suggested that a future change might be to introduce a cap on the maximum amount of asset value that each relief can be claimed against.  Some commentary has suggested a cap of £500,000 would meet various objectives, and at this level, the number of estates due to pay IHT would dramatically increase.

It has also been suggested that BPR should no longer be available for holding shares listed on the Alternative Investment Market (AIM), and that pension pots should be included in the taxable estate when someone dies.

HMRC recently released a consultation about the future of IHT and the outcome of this, and the General Election 2024 will ultimately determine what the future of IHT will look like. Once we have further details of any changes we will update this article accordingly.

What can I do now?

It is difficult to know what changes will be made to IHT in the future.  In comparison to other taxes, the legislation has been relatively unchanged for 40 years.

If you think your estate will be subject to IHT when you pass away then the first immediate step is to take advice on how the tax will apply to you.  There will be a number of options available to reduce the impact of IHT, both during your lifetime and by making provisions in your Will.

If your estate is reliant on APR or BPR then it may be worth considering if any further steps should be taken now.  For example, if a cap on relief is ultimately introduced then would it be prudent to make sensible lifetime gifts of qualifying assets, either directly to your intended beneficiaries or onto a trust for their benefit.  This type of action is not without consequences and so detailed advice should be taken before you proceed.

Many farming and business owners will have assets earmarked for the next generation and may be comfortable making that gift now to take advantage of the existing rules and protect their family from any changes in the future.  Such a gift has a number of other consequences, such as a loss of income from that asset and other tax implications, capital gains tax in particular.

If you would like to discuss your estate and the potential impact of any future changes then please speak to us today. Price Bailey’s IHT advisors are available to discuss your unique situation and advise accordingly. Equally, our comprehensive IHT frequently asked questions guide may assist you.