October 2024’s Budget announced a raft of changes to Inheritance Tax (“IHT”) which have been extensively covered in the press and by this Firm.
To summarise (very briefly!):
- Agricultural Property Relief (“APR”) and Business Property Relief (“BPR”) would be reformed, so that only the first £1m of combined qualifying business and agricultural assets attract 100% relief. Any assets over that IHT allowance are taxed at an effective rate of 20% (50% relief).
- A separate £1m allowance will apply to trusts as well as individuals, including ten-year charges, exit charges and transfers into trust (i.e., trusts part of the relevant property regime).
- The government will bring unused pension funds and death benefits payable from a pension into a person’s estate for IHT purposes from 6 April 2027.
Impact
Farmers are particularly impacted by the changes, due to the typically high value of capital held, relatively low levels of return on that capital, and because many farming businesses are family owned and operated, where the hope or plan is that the business will pass onto the next generation.
Many of Roythornes’ clients are based in the agricultural sector and we recognise that the changes were announced at a time when our farming clients were already under significant pressure from a variety of external factors, including fluctuating prices, rising costs, and changes in the weather. The changes proposed place additional pressures on an industry that provides notable environmental and public “good”, as caretakers of our environment and through the production of food.
Of course, we are acutely aware that the announcement does not only affect farmers. A great number of our clients are owner-managed businesses, outside the agricultural sector, similarly family owned and managed, and with similar aspirations for the next generation to take on the business in the future.
The proposals put at risk the ability for owner-managed businesses to achieve that succession without an IHT bill. As a result, we have been working with many of our clients to create new IHT and estate planning strategies. Our Private Client and Tax teams have also been delivering internal training to ensure our lawyers are alive to how the proposals may impact the work they carry out.
Recent developments
The Government consulted on the technical aspects of the reforms and published their response on 21 July 2025 which provides some clarification and additional detail, including:
- The £1m allowance will be indexed in line with the CPI (a measurement of inflation). However, it will be fixed until the end of the 2030 tax year (in line with other tax freezes). Valuations of relievable assets are therefore becoming increasingly important.
- The allowance will not be transferable between spouses and civil partners (i.e., it is “use it or lose it” which is a throwback to the days before the transferable nil rate band (“NRB”)). Why this should be the case is difficult to fathom. It simply means that those best advised are likely to be in a better position to those who are not so advised.
- The allowance applies in chronological order, so that it will apply to lifetime gifts and exits from trusts first, and will refresh every seven years, much like the NRB, which is of benefit for those engaging in lifetime planning.
- The way in which IHT “exit charges” are calculated is changing, which may make calculating any tax due more complicated (and, indeed, result in more IHT).
- Anti-fragmentation rules will be introduced (preventing people from using multiple trusts after 30 October 2024 to create multiple allowances), but there will be no extension to what is known as the “related property rules” which potentially opens further planning options.
- Trusts holding relievable property before the Budget should get their own £1m allowance.
- IHT on APR and BPR property will qualify for interest-free instalment relief (with conditions).
- In respect of pensions, personal representatives, rather than pension scheme administrators (“PSAs”) as was initially suggested, will be liable for reporting and paying any IHT due (with new rules created for information sharing). In addition, pension beneficiaries will become jointly and severally liable for any IHT due on pension funds and death benefits to which they are entitled from the point at which they are appointed.
- Payment of IHT will either be from the free estate (with a reimbursement from the pension beneficiaries where appropriate); directly from the PSAs using pension funds; or by the pension beneficiaries (who would arrange a refund for any Income Tax paid on the amount of the IHT on their benefits, so that there is no double taxation).
- Death in service benefits payable from registered pension schemes will be out of scope of IHT.
- APR and BPR will not apply to the assets held in a pension scheme, and clarity is still required in respect of the interaction with the wider estate.
Planning
- Families and business owners should gather documentation, confirm “who owns what”, and get valuations of land, partnership/share interests, so that advisors can assess the extent of the IHT problem and identify opportunities for planning.
- Wills need to be reviewed where the surviving spouse or civil partner inherits everything on first death, to make use of the £1m allowance. Flexibility through trusts is frequently key to effective estate and IHT planning.
- There are a variety of planning options to consider, but the right option(s) depend on the circumstances. There is no “one-size fits all” approach. Options include:
- Gifts to individuals, “fracturing ownership” and gifts into trust.
- Life insurance (in the majority of cases, the benefit should be written into trust).
- Incorporation – with a view to making use of share rights.
- The use of minority interests, freezer/growth shares in respect of company shares.
- It's important to involve the bank early on, as assets may need to be released from charges; new parties might need to be added to existing borrowing; or refinancing could be required to carry out IHT planning. These steps can take time, and early engagement helps avoid delays.
- Heritage property relief may be considered, but you need to be aware of the additional ongoing requirements an application for relief requires (public access being a major one).
- Pre-Budget trusts holding relievable property also need to be reviewed, to assess the potential impact of the rule changes on the next ten-year anniversary.
- Pension advisors should be consulted regarding planning options, including the possibility of lump sum gifts and gifts out of surplus income. Nominations should also be reviewed.
Are you ready to start your IHT and estate planning? Click here to request a free checklist to help begin that first step in the process and to start a conversation with our legal and tax advisors.