APR and BPR changes for Landowners

What’s happening?

The headline proposal is that from 6 April 2026 business and agricultural assets will qualify for a “£1mn allowance” of 100% inheritance tax relief but any value above that will receive 50% relief, where previously the rate of relief would have been 100% on the full amount.

This will apply when there is an immediate tax charge on the death of the owner of those assets or on transfers into trust, but also where a gift has been made (either outright to an individual or into trust) and the transferor dies within 7 years of the gift (often called a “failed PET”).

The rules remain the same to determine what is or isn’t an agricultural or business asset for APR or BPR purposes, so there is some good news in that clients won’t need to reorganise businesses to fall within the reliefs – but they may wish to reorganise as part of revised estate planning options (see below). An exception is that AIM shares which previously qualified for 100% relief are treated differently, and will not have a £1mn allowance and the full value will qualify for 50% relief from 6 April 2026.

Some good news in that the announcements confirm that from 6 April 2025 APR will be extended to cover Environmental Land Management Schemes, and government backed ecosystems services contracts – i.e. carbon credits under the Woodland and Peatland Codes and Biodiversity Net Gain (BNG) arrangements. This provides some welcome certainty from April next year, but in the meantime the position is still unclear, particularly for the schemes that diverge further from more traditional farming practices.

The tax would be payable over 10 years under the instalment option, and whilst ordinarily interest runs on the outstanding tax bill and each annual instalment payment includes the interest due for that year, where the property to which the tax relates qualifies in part for BPR or APR, no interest is applied to the instalments. Given that HMRC’s interest rate for outstanding IHT is currently 7.5%, increasing by 1.5% from 6 April 2025 to 9%, this is perhaps a small silver lining for those looking at paying tax over 10 years.

Do note that there is no draft legislation on this yet, so the detail is relatively light at this stage. As further information comes to light we will update on any changes. The update below in based on HM Treasury’s policy paper published alongside the budget on 30 October. 

How does the “£1mn allowance” work?

Aside from the valuation challenges around working out what property will be within the allowance, there are a number of issues with the current proposals to be aware of.

A key concern is that, at the moment, the £1mn allowance will not be transferrable between spouses on death, as it is for the nil-rate band and residence nil-rate band amount for IHT more widely. This therefore looks to be a “use it or lose it” amount that needs to be factored into landowner’s Wills, making sure that they utilise the allowance on the death of the first to die by leaving relievable assets to a value of £1mn to beneficiaries other than their spouses. Whether this is something that could change as HM Treasury gauges responses from the sector remains to be seen.

The allowance covers the combined values of APR and BPR property; it is not a £1mn allowance for each type of property, and will be pro-rated between property qualifying for APR and property for BPR on a value basis.

Assets which currently qualify for relief at 50% will not be included in calculating the allowance, so land let on pre-1995 tenancies (which qualifies for 50% APR) and property used by a business but not owned by it (which qualifies for 50% BPR) will not eat into the £1mn allowance for property currently subject to 100% relief. 

What about trusts?

A technical consultation will be launched in “early 2025 on the detailed application of the policy to charges on property within trust”, but the information so far indicates that existing trusts will each have a £1mn allowance of their own, but any trusts set up after 30 October will share a £1mn allowance. That will be relevant on ten-year anniversary charges and exit charges when capital leaves a trust. Whether pre-2006 life interest trusts (where the value of the assets is included in the life tenant’s estate for IHT and taxed on their death) will have a £1mn allowance is not clear at this stage.

There is a question mark over whether any pre-existing trust will have its own £1mn allowance, or whether only pre-existing trusts already owning relievable property will have their own allowance. The policy paper suggests the latter, but whether it would be possible to add more relievable property to pre-existing trusts before 6 April 2026 to maximise the benefit of the £1mn allowance is not mentioned.

What might landowners do?

The response from many is likely to be to accelerate passing on assets to the next generation before the rules change. Until April 2026 the rules remain as they are for BPR and APR, and also though the rates of CGT have increased, there are as yet no changes to holdover relief for gifts of business or agricultural property which can mean no upfront tax charge on gifts of that property.

So there is an opportunity to make gifts to individuals or trusts with the benefit of 100% IHT relief up to April 2026, and potentially no upfront CGT. However, there are important caveats to that:

• As with all gifts, the person making the gift can no longer benefit from the property they give away: if they do, then the reservation of benefit rules (or “GROB” rules) mean that the property would be treated as remaining in their estates for IHT, so essentially ineffective. So, only landowners who can live without the use of or income from the assets they give away can take advantage of this opportunity.
• The second is a sting in the tail for anyone who survives beyond 6 April 2026, but dies within seven years of making the gift. In that case the gift (whether into trust or to an individual) is brought back into their estates, but rather than still benefiting from 100% relief as at the date they made the transfer, tax will be clawed back under the new rules i.e. only 50% relief on value over £1mn. So, there is a choice for older landowners (who are less likely to get life insurance to cover any tax risk) as to whether they run the risk of falling under the higher tax rates on clawback.
• Holdover relief is not available where gifts are made to trusts that can benefit minor children (this is not a new rule, but the way that holdover relief works currently), so gifts into trust will either need to exclude minors until they reach 18, or if there is an immediate need for the next generation to benefit they have to be over 18. So, families where the next generation is older might use trusts to preserve flexibility and pass on current benefit from assets, but where younger children are involved, that benefit might be locked up in trust until a later date, meaning that funds might need to come from elsewhere for things like school fees.

Passing on assets may not be the only route landowners might consider. Reversionary lease schemes, creating companies with different share classes owned by different generations or trusts to give minority ownership discounts – essentially methods of fragmenting ownership to achieve valuation advantages – might be routes to maximise the benefit of the £1mn allowance. Those arrangements require very careful structuring to avoid falling foul of anti-avoidance rules, but can be viable in the right circumstances.

Life insurance will also likely play a big part in planning for landowners, and current arrangements and insured amounts will need to be reviewed to ensure that there is sufficient cover in place.

There will be opportunities to seek to minimise the worst effects of these changes but careful planning will be needed, once we have details of the draft legislation, and there is time between now and April 2026 for landowners to take stock and make plans.