Legislation day – Agricultural Property Relief and Business Property Relief

On Monday 21 July 2025, or ‘Legislation Day’ as the government termed it, the draft Finance Bill 2025-26 was published. This set out much of the long-awaited detail on the proposed changes to taxation.

This follows the significant announcements made in the 2024 Autumn Budget and the consultations that followed. Those affected have been eagerly anticipating the substantive detail so they can take advice accordingly.

In this series of articles, we aim to provide our initial commentary on the draft legislation in so far as it affects personal taxation. Here, we focus on the changes to Inheritance Tax (“IHT”) reliefs.

The headlines

One of the most controversial Budget announcements related to changes to Agricultural Property Relief (“APR”) and Business Property Relief (“BPR”). Broadly speaking, there has been little deviation from the previously announced policies, despite significant lobbying from industry.

From April 2026, APR and BPR will be subject to a single allowance of £1million per individual. Up to that threshold qualifying assets will attract 100% relief. Any qualifying assets over this threshold will be restricted to 50% relief, effectively creating a 20% rate of IHT. This allowance will be assessed on a 7-year rolling basis. Relief was previously unrestricted.

BPR for shares not listed on recognised stock exchanges i.e. AIM or foreign exchanges is capped at 50%.

The application of this new allowance to trusts is complex. For trusts created before 30 October 2024, provided the settlement held qualifying assets prior this date, each settlement will have its own £1m allowance. New trusts created by the same Settlor on or after 30 October 2024 will share in the £1m allowance. The allowance will refresh every 10 years for trusts.

Transfers of relieved property on or after 30 October 2024 and before 6 April 2026 will be subject to transitional rules such that, although the original transfer will be assessed under the current regime, if the transfer is not survived by seven years, it will be reassessed on death under the new rules.

The detail

There are a number of important details accompanying these headline changes and points of clarification worth noting:

• The £1m allowance remains non-transferable between spouses, unlike other IHT allowances, so careful lifetime and succession planning will be needed to ensure both allowances are used in full.
• The £1m allowance will be index-linked in line with Consumer Price Index from 2030. This change is a direct result of the previous technical consultation.
• The option to pay IHT in 10 equal interest-free instalments will be extended to all property which is eligible for APR and/or BPR. This is welcome news, particularly as HMRC’s current interest rate is 8.25%. This will relieve some of the cash-flow burden for taxpayers where there is limited liquidity.
• The government previously suggested that the related property rules would be extended to trusts created by the same settlor, preventing valuation discounts from applying to such holdings. This suggestion has been dropped following the consultation process.
• The way the £1m allowance will be apportioned between new trusts created by the same settlor after 6 April 2026 appears complex. The allowance will be applied chronologically, with the trust receiving a proportion equal to the value of the qualifying assets transferred in. We expect further detail will be required here, as this could lead to unexpected charges if the value of the assets increases over time or if further relieved property is acquired. As ever, record-keeping will be essential.
• Interestingly, no matter the value of the relieved assets within a trust on 29 October 2024, it appears the relevant settlement will still qualify for the full £1m allowance. The ownership and occupation requirements can be set aside for the purpose of assessing whether the trust held relieved assets.

What next?

The draft legislation is now subject to an eight-week technical consultation, running to 15 September. As highlighted above, there are areas requiring clarification and accordingly the finer detail may be subject to change.

However, we now have a more accurate framework to enable our clients to consider their tax and succession plans. Families with valuable farming or business assets should review their arrangements, in particular their Wills and existing trusts, now. In addition, there are certain lifetime transfers, corporate re-organisations and trust distributions that could be completed prior to these rules coming into effect to secure relief under the current regime.

If you hold agricultural or business assets and are concerned about the impact of these changes, please contact our Private Wealth team. Timely advice can help preserve relief, manage liquidity and ensure your succession plans remain tax efficient.