BPR and APR draft legislation is published

On 21 July 2025 the UK government published draft legislation to implement the changes to business property relief and agricultural property relief for inheritance tax. This draft legislation and accompanying papers provide much needed detail for those who have been waiting since October 2024 for details about the rules that will apply from April 2026. 

However, many will be disappointed that despite significant lobbying by industry groups and professional bodies, there are no substantive changes to the proposal to cap the availability of BPR and APR.

What will change? 

Each individual will have a capped amount of 100% relief they can claim on business and agricultural property. This cap will be £1million (but from 2030 potentially subject to CPI increases). 

That cap (or allowance in the language of the legislation) will be reduced by any failed lifetime gifts (potentially exempt transfers) or any chargeable lifetime transfers (for example to a trust). Each person’s allowance for full relief will refresh every 7 years. When someone dies, there will be an assessment of what allowance they have left based on the years leading up to their death that can then be used in respect of any relievable assets that would otherwise be subject to IHT on their death. 

For trusts, each relevant property trust will have an allowance for full relief that will determine what relief is available on each IHT event of the trust. That includes exit charges and ten year anniversary charges. The trust allowance will refresh every 10 years. What a trust’s allowance will be depends on when it began and what it owned at certain points in time. Transitional rules apply for trusts that existed before the Budget in 2024. These changes mean that some trusts will now pay IHT for the first time.

For both trusts and individuals, any value of business property or agricultural property in excess of the allowance for relief of 100% will only get 50% relief. 

See our earlier articles for more information on: 

1. Landowners and family businesses - impact of proposed IHT changes on lifetime gifts
2. Landowners and family businesses - impact of proposed IHT changes to estates on death
3. Landowners and family businesses – impact of proposed IHT changes to trustees
4. Flow chart for trustees to review how they may be impacted by the new rules

Has anything changed in the proposals? 

Industry groups, professional bodies, business owners, and landowners have all lobbied the government to make changes to the proposals. 

Suggestions have ranged from scrapping the proposals altogether, increasing the amount of the allowance, making the allowance transferable between spouses, or perhaps limiting the allowance to circumstances where property is sold following death rather than where it is kept in the family. 

Broadly speaking, none of these have been accepted by the government:

1. The £1million cap remains but a mechanism has been added whereby following the tax year 2029/2030, the allowance number of £1million could be increased in line with CPI. However, it is important to note that this is not automatic. It will require the government of the time to make an order via statutory instrument to implement any increase. Remember that the nil rate band amount of £325,000 is subject to a similar mechanism but has been unchanged since 2009 resulting in significant fiscal drag. 
    
2. The £1million cap will not be transferable between spouses. The government specifically noted that this was requested by many but concluded “… making the £1million allowance transferable between spouses and civil partners would carry an Exchequer cost. For this reason… [it will] not be transferable”. Spouses and civil partners will need, therefore, to consider their estate planning carefully to ensure they maximise any reliefs.  
    
3. Some anti-fragmentation rules had been suggested at the consultation stage. The first was that the trust allowance would apply chronologically to settlements set up by the same person. The second was a suggestion to amend how assets are valued if they are owned by different trusts. The second idea has been dropped on the basis that the first – chronological application of the trust cap – is a sufficient deterrent to trying to fragment ownership and artificially supress values. For more on this valuation issue see our earlier article.
    
4. Some respondents to the consultation suggested that there should be greater flexibility allowing taxpayers to decide which assets the allowance would apply to – such as on the creation of trusts. This was dismissed as unworkable and instead the allowance will be used up on a chronological basis. 
    
5. The government noted concerns around information sharing between trusts set up by the same person so as to understand what allowances each had for full relief. These concerns were dismissed as the government considers that trustees are already under a duty to act reasonably and take such necessary steps to ensure they have the required information. 

What should I do?

Now is the time to take advice. 

While some people have already been considering their options based on the consultation papers and Budget announcement, with the publication of the draft legislation it is clear that the government’s policy is fixed and barring some drastic political event, it should be expected that this (with some small adjustments to the legislation wording) is going to be the final position that applies from April 2026. 

Advice should include:

1. Assessment of likely IHT on death under the new rules. How could this be funded? Are there separate assets that could be sold? Can your business afford to pay this and how will that cash be made available to the right people to pay the IHT? Can you insure the liability? 
    
2. Is your Will up to date? You will need to consider the terms of your Will to ensure that the 100% allowance is maximised and any issues around property that now only gets 50% relief are dealt with. Care should be taken if you are in a civil partnership or married and spouse exemption might otherwise apply. 
    
3. Should you create a trust? Pre-April 2026, a trust of qualifying relievable property would have no IHT entry charge. After April 2026 onwards, the allowance will mean that only the first £1million will be fully relieved and any excess would have an entry charge of IHT of around 10%. Also consider the ongoing charges under the new rules. Is that a price worth paying to remove value from your estate but have the flexibility and control a trust can offer? Remember that holdover for capital gains tax can also be claimed on transfers into trusts meaning no CGT on the transfer.
    
4. Should you bring an existing trust to an end? Looking ahead, when is the trust’s next ten year anniversary? Model the IHT on that charge and assess if that is affordable. What is the trust’s allowance going to be? What are the terms of the trust? What can be changed and who could benefit from it? For an overview of considerations for trusts under the new rules see our summary document here.
    
5. Is it time to make gifts to individuals? Consider if you can afford to make a lifetime gift of the relievable asset if you no longer need it and are content to cede control. Think about who is taking that asset. Consider if their estate planning is up to date. Review the company articles and shareholders’ agreement. How much of the business or land should you give away? 

Burges Salmon has extensive experience advising family businesses and landowners. Our private wealth team can assist with tax advice, estate planning, family advice, corporate advice, and property advice. We are able to advise you on these issues as a whole or work alongside your existing advisors to guide you through what the options might be for your business or land ahead of the changes next April. 

... many will be disappointed that despite significant lobbying by industry groups and professional bodies, there are no substantive changes to the proposal to cap the availability of BPR and APR.