New Agricultural and Business Relief Concessions Could Ease Inheritance Tax Pressure, With Proper Planning
Published byRod MacLean
Private Client Partner in WJM’s Inverness office, Rod MacLean, highlights the pending changes to Business and Agricultural Relief, the impact on Inheritance Tax and how to best plan for the new rules coming into force.
Wright, Johnston & Mackenzie LLP is committed to advising and supporting businesses and families across the Highlands and Islands as planned changes surrounding Inheritance Tax (IHT) draw closer.
In April, new IHT rules and restrictions will come into force, potentially increasing the pressure on many businesses, farms and landowners already dealing with the stresses of the economy.
If you’re a business or property owner, it’s vital to get advice regarding the planned changes to IHT and the impact it could have on your assets, particularly when it comes to updated restrictions surrounding Agricultural Relief (AR) and Business Relief (BR).
The changes were first announced in the UK Budget in 2024, restricting 100% AR and BR to £1 million, with only 50% AR and BR being available for farming or business assets valued over the new allowance. These changes are due to come into effect in April this year.
Since the 2024 Budget, there has been a lot of debate about the effect of the changes on farms and businesses and the government has come under pressure to relax or even abandon the proposed changes. The changes are still going ahead, but there have been two significant concessions announced in the last few months.
In the November Budget, the Chancellor announced that the allowance will be transferable between spouses. This means that if the surviving spouse inherits all the farming or business assets, the allowance available to their estate will double.
Just before Christmas the government announced the £1m allowance would increase to £2.5m.
The combined effect of these announcements is significant, particularly for married couples who will now be able to pass a combined value of £5m of agricultural and business assets to the next generation without paying inheritance tax.
That said, planning remains imperative if you are to mitigate risk and limit the impact of these taxes on the next generation. It is vital that you take advice from a solicitor experienced in succession planning and inheritance tax in conjunction with other professional advisors.
So, where does that leave farmers and business owners wanting to plan for their succession in a tax efficient manner?
As things stand, BR is an essential tool for reducing IHT liabilities, in most cases providing 100% relief on qualifying business assets. This relief applies to business assets transferred on death, through lifetime gifts, or to assets already in trust.
To qualify, a business must be predominantly trading, with more than 50% of its activities being trading, rather than investment based. A two-year ownership period is generally required, although exceptions exist, such as spousal inheritance or asset replacement.
For corporate structures, shares in a trading group's holding company may qualify for BR, but investment-heavy subsidiaries may complicate eligibility, requiring regular structural reviews.
It's also important to identify "excepted assets" that don't qualify for BR, but may still allow the business to meet the trading threshold.
AR operates similarly to BR, offering 100% IHT relief on the agricultural value of qualifying land and buildings (excluding any commercial or development value).
AR applies in two situations: when the owner actively farms the land (with a two-year ownership requirement), or when land is let to a working farmer (requiring a seven-year ownership period).
AR generally takes priority over BR, and BR may still apply to assets like plant, machinery, goodwill, or any commercial value beyond the agricultural value. Both AR and BR currently have no limit on relief, provided the assets qualify.
From April, the current system will change with the introduction of a £2.5m cap on the combined value of assets that qualify for 100% relief under both AR and BR.
This cap, which applies per individual, significantly alters estate planning. The value of assets exceeding this threshold will receive only 50% relief. For a farming business the cap will be allocated proportionally between agricultural and business assets and will be transferable between spouses, which emphasises the need for joint estate and succession planning where possible.
These changes introduce complexity, emphasising the need for early planning, especially for those with significant business or agricultural assets.
With the number of IHT-liable estates projected to rise by 50% by 2027, now is the time to understand how these reforms could impact you.
This article first appeared in Executive magazine
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