Five steps to reduce IHT risks ahead of impending changes to APR and BPR

When the Government marked the end for uncapped 100% inheritance tax relief under APR and BPR (agricultural and business property relief) at the Autumn Budget last year, it threw farms and family businesses into turmoil.

APR and BPR play a vital role in helping families pass farms and businesses from generation to generation, preventing their break-up to pay inheritance tax bills and helping ensure continuity. But, under the new rules, families must now radically rethink their approach or potentially face damaging consequences.

What are the changes to APR and BPR?

Currently, 100% inheritance tax relief is available on qualifying agricultural and business property, allowing it to pass on without families having to pay inheritance tax. From 6 April 2026, the rules are changing and instead, the first £1 million can be passed on inheritance tax free, but any excess will only receive 50% inheritance tax relief, resulting in an effective inheritance tax charge of 20% (or a 3% charge every 10 years for discretionary trusts). 

The £1 million allowance also includes lifetime gifts where there is a death within seven years – including gifts made on or after 30 October 2024 where there is a death on or after 6 April 2026 – and it cannot be transferred between spouses on first death. Trusts established before 30 October 2024 will each have a £1m allowance, but after this date the allowance is shared between trusts created by the same settlor. 

With 4.8 million family businesses in the UK and estimates from the National Farmers’ Union that 75% of commercial farms are above the £1 million threshold, changes to APR and BPR clearly have profound and far-reaching consequences for many. 

Five steps families can take to respond to APR and BPR changes

S&W’s Toby Tallon says: “Don’t panic. Yes, this is a huge tax change but there is still time to take action. The following five steps will help you do this.”

1.    Consider the ‘do nothing’ option 

Toby says: “If you take no action before 5 April 2026, what would the impact be? You can model this and see. Maybe you can afford it, maybe it won’t derail your plans. 

“You’ll need to consider how you’ll fund the tax bill, for example from dividends, partnership profits, the sale of capital assets or from insurance you have in place. You don’t need to pay in one go; in many cases it can be over 10 annual instalments with no interest.” 

2.    Review or consider trusts

Toby says, “Trusts are a fantastic vehicle for governance and protection so make sure to review whether you should consider putting assets into new trusts, adding more to existing trusts or taking out of trusts. Following publication of a consultation document in February, we now have a clearer picture of how the rules are intended to work.”

According to the consultation document:

-    Gifts into trust made before 30 October 2024 still benefit from the current rules and so qualify for uncapped 100% relief even if the donor dies within 7 years after 5 April 2026. 
-    For trusts created after 30 October 2024 but before 6 April 2026, 100% relief is potentially available on BPR/APR qualifying assets, but only provided the donor survives the gift by 7 years.
-    Trusts set up before 30 October 2024 will move to the new rules on the first 10-year anniversary after April 2026, which means distributions before then will still get full relief and there may be more time for assets to be distributed without eating into the £1 million allowance 
-    Potentially the £1m allowance could be used every 7 years to set up / add to existing trusts. Although care should be taken not to fall foul of the “anti-fragmentation” rules.

3.    Married? Make sure to use both allowances

Toby says: “As a married couple, you both get a £1 million allowance, giving a combined £2 million allowance across APR and BPR. 

“This allowance isn’t transferable so if you don’t use it, you will lose it. Take care because most wills leave everything to a spouse on first death, which means one of you will forego your allowance. When the second spouse dies, more of the estate is likely to be above the £1 million limit, leading to a bigger tax bill.”  

4.    Can you make lifetime gifts of qualifying assets?

Toby says: “The UK has a very generous gifting regime – although there has been talk recently of this potentially becoming tougher. Those in a position to make gifts of qualifying assets during their lifetime can take advantage of the seven-year rule. Under this rule, your gift is free from inheritance tax if you survive for seven years after making it. Bear in mind, if you think you’ve left it too late, that inheritance tax does start to taper after three years.
There are several other allowances for making smaller inheritance-tax free gifts and if you have excess income after covering your normal expenses, you can make regular gifts from this without incurring inheritance tax. 

“Where Capital Gains Tax would be triggered by a gift, you may be able to “hold over” the gain if the asset qualifies as a business asset, or if the gift is made into trust. Care should be taken here as there is a lot of detail in these rules.”

5.    Beware ‘gifts with reservation of benefits’ rules

“This is a technical term for some anti-avoidance legislation. It broadly means if you give something away but continue to benefit from it, the gift won’t leave your estate and won’t reduce your inheritance tax bill. A general example could be a valuable painting – you can’t give it to your children but keep it hanging on your wall so you can continue enjoying it,” says Toby.

In the context of a farm, care is required where you are considering a gift of part of a farm partnership – you’ll need to get the profit sharing ratios right to avoid these rules biting. 

Navigating between now and April 2026

Those were the five steps but how do you crack on with them before April 2026? Toby makes the following suggestions:

Explore

“There’s a lot you can get on with right away, even without full clarity. Start now with an exploration stage, what is your ‘do nothing’ IHT exposure, how can you improve the APR/BPR position of your business or farm, and make sure your will is up to date.  Also, review your business housekeeping, make sure legal documents and accounts are up to date (land titles, partnership/shareholder agreements etc) - those things you know you need to do or plan to do but haven’t tackled yet. You’re going to need these for any planning execution so get them sorted now while you have time”.

Plan

“The second thing you can do is start planning and having those family meetings. You’ll need to think about what's important to you – who gets what, when and how, what holding structure is right for your family, how much control and protection do you want to retain. Consider wider financial planning too such as how much do you need for retirement, what can you afford to give away now, how best to make use of your pension, and consider life insurance.” 

Execute

“Then once you have done all the planning, you’ve had all the family meetings, the final stage is executing those plans. This could be making outright gifts, settling assets into trusts or removing them, and updating wills. The new rules are not yet final and so the message here is get your ducks in a row and be ready to hit go when the rules become final. Don’t leave the planning to the last minute.”