Julia Peake, Technical Manager, Nucleus, delves into the tax changes to agricultural and business relief now confirmed to happen from April 2026.
Draft legislation released in July confirmed the Government is proceeding with its proposed changes to Inheritance Tax (IHT) for both pensions and qualifying agricultural and business relief assets. A consultation was run, closing on 15th September, to ensure the draft provisions work, so there could still be further changes due at the Autumn Budget.
Many commentators have written about the proposed pension and IHT changes already, so this article focuses on the changes to agricultural and business relief from April 2026.
Summary of proposed changes
- 100% relief limited on qualifying agricultural and business property to the first £1m per individual but there is no spousal exemption if unused.
- Individual’s £1m allowance will refresh everyseven years, similar to how the nil rate band applies meaning:
- CLTs on or after 6 April 2026 including qualifying property giving rise to an entry charge, will be subject to an individual’s £1m allowance every seven years.
- PETs will be subject to the £1m allowance post 2026 if death within seven years of the gift.
- The £1m allowance will be allocated in chronological order. Once used, 50% relief will apply to other CLTs and any qualifying property on death.
- Business relief reduces from 100% to 50% for all shares traded, but not listed, on recognised stock exchanges such as the Alternative Investment Market (AIM) and for qualifying shares listed on foreign exchanges which are not a recognised stock exchange.
- The £1m allowance will increase in line with indexation from 6 April 2030.
- The option to pay IHT by instalments over 10 years interest-free will be extended to all property which is eligible for agricultural and business property relief.
- Trustees have £1m allowance on qualifying property to which 100% relief applies, on 10-year anniversary and exit charges. 50% relief will apply for assets above this value.
- Relief is cumulatively for multiple exits and resets every 10 years.
- £1m allowance used against an exit charge will reduce the amount available at the 10-year anniversary, so it’s not used twice.
- Distributions made pre and post 10-year anniversary on or after 6 April 2026, agricultural and business property relief will not be considered when calculating the rate of IHT, to prevent the current difference in calculation.
Transitional rules apply for transfers of qualifying property to trusts between 30 October 2024 and 6 April 2026:
- The new 50% rate will apply to PETs or CLTs of shares traded on but not listed on recognised stock exchanges, made during the transitional period and within seven years of death where the death is on or after 6 April 2026. But this will not apply to PETs or CLTs of qualifying shares listed on foreign exchanges in this period.
- Trusts Pre-October 2024
- PETs and CLTs will not be brought into the £1m allowance until the trust fund’s next 10-year anniversary, on or after 6 April 2026.
- Qualifying property settled before 30 October 2024 will get unlimited 100% relief on exit charges until the trust’s next 10-year anniversary, on or after 6 April 2026. These exits will not reduce the £1m allowance available at the next 10-year anniversary.
- Trusts Post October 2024, pre-6 April 2026
- £1m allowance applies to any PETs, and CLTs where death occurs within seven years and on or after 6 April 2026. If death before 6 April 2026, current rules apply for PETs.
- £1m allowance not applied to entry charges and not part of cumulative value for transfer to trust if survivesseven years.
- No exit charges or reduction on £1m at 10-year anniversary until April 2026. Post April 2026, £1m allowance applies to exits and reduces allowance on 10-year anniversary.
- The £1m allowance will only apply to complete quarters which fall on or after 6 April 2026 when calculating the first 10-year anniversary for qualifying property settled into trust during this time.
- Multiple trusts holding qualifying assets created pre-29 October 2024
- Each trust will have its own £1m allowance even if settlor adds funds to the trusts.
- Created post 30 October 2024
- Single £1m allowance across all trusts, allocated in chronologically.
- The allocation will apply for the lifetime of each trust. Unused allowance can’t be used by related trusts by the same settlor.
- Where qualifying property applied totwo or more trusts on the same day, the allowance will be apportioned according to the value, like the NRB.
- Special trusts (as defined by the Act)
- Not subject to relevant property regime. However, trustees will be subject to the £1m allowance for exits from 6 April 2026. The £1m allowance will not refresh as no 10-year anniversary charges.
- 18-25 trust assets do not form part of the beneficiaries’ estate until they’ve attained a specified age. An exit charge applies when they take their share of the trust assets, the rate cannot exceed 4.2%.
- To prevent any adverse outcomes, where older siblings might utilise the full allowance, the £1m allowance will refresh for eachbeneficiary, to be used against any exit charge due.
- Any qualifying property held in a QIIP trust will be included in the beneficiary’s estate on death. The £1m allowance for individuals will apply to qualifying property held in a QIIP trust where the person with an interest dies on or after 6 April 2026.
- If there has been a lifetime transfer of qualifying property from the QIIP trust on or after 30 October 2024, and the person with an interest dies on or after 6 April 2026, the £1 million allowance will apply to this transfer.
These upcoming changes will mean clients with these assets will need to seek professional, financial, tax and legal advice to see how these changes impact their estate planning and what they might need to review to ensure their plan remains tax efficient.
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