Landowners and family businesses – impact of proposed IHT changes to estates on death

This post is one of a series on the impact of changes to agricultural property relief (APR) and business property relief (BPR) from inheritance tax (IHT) on different people. If you are a landowner or own a family business that doesn’t involve land, this piece highlights how the proposed changes to APR and BPR will work on your death. 

For an in-depth look at what the consultation says, see our earlier summary https://www.burges-salmon.com/articles/102k2dw/consultation-on-agricultural-and-business-property-relief/

The focus of this piece is on what is changing, but do not forget the basic conditions for qualifying for APR or BPR have not changed: in most cases you must have owned the property for at least two years, the business must be mainly trading, and so on. There are lots of detailed conditions and we will assume from now on that you have met them.

Alongside the business assets you own, you very probably have assets which do not get their own inheritance tax reliefs, such as savings accounts or investments. This article ignores all of those and deals only with trading businesses and farms. We call them “the property” for the purpose of this piece, so as you read bear in mind that there may well be other assets in your estate that are charged to IHT with no relief at all.

For many who had originally planned to retain ownership of their interest in the property but under the new rules would be subject to IHT on their deaths, lifetime gifts to put that value outside their estates are now more relevant. For our article on making lifetime gifts, see Landowners and family businesses - impact of proposed IHT changes to lifetime gifts - Burges Salmon

When does the change happen?

Anyone who dies before 6 April 2026 should be taxed under the “old” rules. These changes mainly affect your estate if you die after then, but the history before 6 April of things like gifts or transfers into trust of the property may be relevant. 

How does the allowance work when I die?

Your executors will be able to claim 100% IHT relief on up to £1,000,000 of the value of the property. All remaining value can only get 50% relief. 

The £1,000,000 is divided between agricultural property and business property by value. It’s not yet clear from the information we have what will happen when property gets both types of relief (common in the case of in-hand farms).

What happens to the £1,000,000 allowance if I made gifts in the seven years before death?

The £1,000,000 allowance works in a similar way to how the nil rate band works at the moment. 

Gifts and transfers to trust in the previous seven years are brought back into your estate when you die (sometimes called the “seven year rule”), and can mean there is tax to pay on those gifts. Tax reliefs can apply to these gifts too; both APR/BPR but also “taper relief” where the rate of tax reduces the longer you have survived beyond the gift. 

The £1,000,000 allowance will be applied to gifts of the property and transfers to a trust in the order they happened, even if those gifts were before 6 April 2026. Any remaining balance will be applied to the property you owned at death. Only gifts made before 30 October 2024 won’t be brought into account. 

So, say a person makes a gift of £500,000 of the property in April 2025 and a further £200,000 in April 2026, and then dies in April 2027: they will have used up £700,000 of their £1,000,000 allowance, leaving £300,000 to set against any of the property they have in their estate. 

The £1,000,000 allowance will refresh every seven years; so if you survive for seven years from making gifts, you can make more gifts of property with a new £1,000,000 allowance available. 

I have an interest in a trust. How does that affect the £1,000,000 allowance?

Property in some types of types of trust is treated for IHT as your property. The most common examples are “life interest” trusts created by a spouse’s Will or by someone else before 2006. “Life interest” means you have the right to the income and use of the property in trust during your life. 

The £1,000,000 allowance will be divided between your property and the trust’s property by value. This often occurs where both the trust property and the property your estate will all be passing to the next generation, and so the impact of sharing the allowance is mitigated as it gets set against the general transfer of family property.

It can cause more difficulties in cases like second marriages where the property may pass to the children of your former spouse (your stepchildren) and takes some of the allowance from property passing to your own children.

Other types of trust are treated differently. “Discretionary” trusts are usually completely separate and have their own tax charge regime and £1,000,000 allowance (a separate post on how the changes will affect trust will be available soon). 

Is there anything we should be doing about this now?

You could consider making gifts to the next generation or into trust with the aim that if you survive for seven years the assets will be out of your IHT estate. Whether that is possible depends on whether you can afford to live without those assets, how much capital gains tax there may be on the gift (which doesn’t apply on gifts to your spouse, or to a trust) – for more detail on gifts, see our article Landowners and family businesses - impact of proposed IHT changes to lifetime gifts - Burges Salmon

The £1,000,000 does not transfer between spouses (unlike the nil rate band). One action to take will be to make sure each spouse owns at least £1,000,000 of property so that the maximum allowances can be claimed on each spouse’s death. 

This needs to be looked at carefully and the impact of other reliefs, like the residence nil rate band, considered.

It is important to remember that when you make a gift to a spouse they then need to own the property for the minimum period to qualify for APR or BPR, which is two years in most cases, or seven for let agricultural property. Whereas, if your spouse inherited the property from you on death they would qualify for relief immediately.  

Is it a good idea to give so much to my spouse?

You may want to consider whether you are comfortable giving part of the property to your spouse, especially if it is a family business or land which you want to protect for future generations. 

Marital agreements (“post-nups”) are a key part of this sort of planning. These agreements ensure that any property transferred to your spouse is protected if you were to get divorced by ‘ring-fencing’ key family property and agreeing that your spouse would receive other assets to meet their needs. 

My spouse has already died

There is only a single £1,000,000 allowance available to use, as even if your spouse left property to you no allowance is carried over. 

If gifts to the next generation aren’t possible, the main question is going to be whether the amount of IHT payable on your death is going to be manageable for your family. In some cases for smaller businesses, the £1,000,000 allowance, plus 50% relief on any remaining value and the nil rate bands may mean there is little or no tax to pay. 

In other cases, the advice may be to risk making gifts now. If you can do without the income, some gifting is usually better than none. Other options include finding ways to reduce the value of the assets in your hands, perhaps by granting long leases. Life insurance may be a way to ease the burden of tax, but the cost of it needs to be carefully weighed against the benefit. But all circumstances are different, and you should take advice as soon as possible.

What about Wills?

Anyone owning property affected by the April 2026 changes needs to have their Wills reviewed. In most cases both you and your spouse should include gifts of £1,000,000 of property to maximise reliefs which would be lost if everything passed to the surviving spouse, but still mean that there is no (or little) IHT to pay on the first death of a married couple. That may mean leaving a gift of £1,000,000 of property to your children or into trust when the first of you dies. 

It will be possible for the surviving spouse to benefit from these trusts, so it may be possible for a business to carry on much as before. That said, the trusts will inevitably add some complexity and administration. This is much like the system which existed before the nil rate band was made transferable between spouses in 2007. Back then the government realised the tax rules created unnecessary complexity and made a simple change which benefited everyone without significantly reducing the tax take. We hope they will see sense and do the same again.

Can anything be done after I have died?

In many cases it will be possible to use a deed of variation to get the maximum benefit of the reliefs. The most common case will be the first death of a married couple where the Wills leave everything to each other. The surviving spouse could redirect £1,000,000 to the children or into trust. However, that comes with some technical disadvantages so it is better to start with the gift written into the Will if you can. 

If your Will uses a flexible trust rather than a gift to the children, that keeps the options open. If the surviving spouse needs the property more than the tax saving, the trustees should be able to give it to them.

What next?

1. None of these are easy questions for family business owners and landowners, but they are important discussions to be having. 
2. 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.

The main question is going to be whether the amount of IHT payable on your death is going to be manageable for your family.