The UK government has released its long-anticipated consultation on changes to Inheritance Tax (IHT) relief for agricultural and business assets, known as Agricultural Relief (AR) and Business Relief (BR).
These changes are set to take effect from 6 April 2026.
While many of the proposals were expected, the consultation includes some important clarifications and new details. Here’s a breakdown of the key points—what’s good, what’s concerning, and what could get complicated.
The good news: key positive changes
- £1 million relief allowance refreshes every 7 years
- Everyone gets a £1 million allowance for 100% IHT relief on qualifying assets.
- This allowance refreshes every 7 years, like the nil-rate band.
- Example: Anthony can place £1.65 million of qualifying assets into a trust in year one. £1 million is fully relieved, and the rest is partially relieved via a mix of 50% relief and his nil-rate band. After 7 years, he can do it again.
- Lifetime gifts to individuals don’t use the allowance (if the donor survives 7 years)
- Gifts made during an individual’s lifetime won’t count against their £1 million allowance if they live for 7 years after making the gift.
- Example: Bethany gives £1 million in BR assets to her daughter and lives 7 more years. Her estate still gets the full £1 million allowance.
- Interest-free instalments for IHT payments
- IHT due on AR/BR assets can now be paid in 10 annual interest-free instalments.
- This helps the beneficiaries of businesses and farms manage cash flow better when paying IHT.
- Grace period for trusts with pre-2024 assets
- If assets were placed in trust before 30 October 2024, the new rules won’t apply until after the first 10-year anniversary post-April 2026.
- This gives trustees more time to plan without triggering extra charges.
- Private company shares still get 100% relief
- Despite earlier confusion, private company shares will continue to qualify for 100% BR, up to the £1 million limit.
- This is now clearly confirmed in the consultation.
- More flexibility for foreign shares
- Foreign shares on non-recognised stock exchanges may not be subject to the same transitional rules as other classes of AR/BR assets.
- This gives more time and flexibility for planning before April 2026.
The Bad: Problematic Proposals
- Tighter rules on trust planning
- The government is worried people will split assets across multiple trusts to get valuation discounts and maximise the £1m relief multiple times.
- They’re considering a rule where assets in different trusts (from the same person) are valued together, not separately.
- Example: Colin tries to split his company into five trusts to maximise shareholder minority discounts. He understands that a 20% holding in his company is worth significantly less than 20% of the whole because of its lack of voting influence; his adviser has said that discounts of 60% might be available. Under the new rule, all shares would be valued as one block, removing the discount advantage.
- No transfer of the £1m allowance between spouses
- Each person gets a £1m allowance, but you can’t transfer it to your spouse.
- This means couples may need to restructure their assets and make changes to their will provisions to ensure use of both allowances on first death, which adds complexity, cost and paperwork for taxpayers and HMRC alike.
- Many professionals are criticising this as it could lead to unnecessary fragmentation of farms and businesses, so there is hope it will be reviewed
The ugly: complex and burdensome trust rules
- Major changes to trust taxation
- Trusts that hold AR/BR assets already face IHT charges every 10 years and also when assets leave the trust.
- The new rules make these charges even more complex and could increase the tax burden.
Key points:
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- Old trusts (before 30 Oct 2024): Get their own £1m allowance if they held 100% AR/BR assets by 29 Oct 2024 *. However, there are complex transitional provisions for how the first 10-year charge will be calculated post 6 April 2026, although thankfully these appear to include some concessions to the taxpayer.
- * It’s still unclear whether trusts created just before Budget Day will qualify for the grandfathering rule—especially if the property in those trusts haven’t yet met the two- or seven-year ownership periods and occupation conditions needed for full relief by 29 October 2024.
- New trusts (after 30 Oct 2024): Only the first trust to use the £1m allowance gets it. Later trusts from the same person won’t benefit, even if the first trust is closed or sells the assets.
- Allowance refreshes Every 10 years: The £1m allowance resets every 10 years, but distributions of 100% AR/BR assets reduce it during that period, with the result that a lower (or no) allowance will apply on a 10 year charge.
- Old trusts (before 30 Oct 2024): Get their own £1m allowance if they held 100% AR/BR assets by 29 Oct 2024 *. However, there are complex transitional provisions for how the first 10-year charge will be calculated post 6 April 2026, although thankfully these appear to include some concessions to the taxpayer.
Other clarifications
- If a beneficiary is treated as owning trust assets, the £1m allowance is shared between the trust and their personal estate.
- If someone dies after making gifts of AR/BR assets, the £1m allowance is used in chronological order, just like the nil-rate band.
To discuss your financial planning, contact our Financial Services team on 01142 664 432 or info@smh.group
The Financial Conduct Authority does not regulate Inheritance Tax Planning or Trusts.
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