Budget 2024: restrictions to agricultural property relief and business property relief

This was one of the most anxiously anticipated Budgets that many of our clients have faced in recent years, with much speculation on the future of inheritance tax.

We were told to expect change, but Rachel Reeves’ Budget 2024 has announced several key reforms which will have a significant and far reaching impact on the succession plans of many farming families, estates and rural businesses.

The current inheritance tax “nil rate band” threshold which can be passed on without IHT) will continue, although the current level (£325,000) which was set to be frozen until April 2028 has been extended for a further two years to April 2030.

Changes to agricultural and business property relief

The most significant change is the reduction in agricultural and business property relief. The fear is that this change may threaten the long-term viability of many farming businesses. With effect from 6 April 2026, 100% relief will only be available for the first £1,000,000 of combined agricultural and business property (applied proportionately across the qualifying property) and will be 50% thereafter, an effective 20% tax rate on the value of property in excess of £1m.

The allowance covers the following transfers:

• property in the estate at death
• lifetime transfers to individuals in the seven years before death (“failed potentially exempt transfers”)
• chargeable lifetime transfers where there is an immediate lifetime charge, so for example when property is transferred into trust

Any unused allowance will not be transferable between spouses and civil partners.

The new rules will apply for lifetime transfers on or after 30 October 2024 if the donor dies on or after April 2026 and within seven years of the transfer.

However, it seems that where the rate of relief for the agricultural property (APR) or business property (BPR) is at 50%, for example where land is let on tenancies granted before 1st September 1995 or where land with non agricultural value is used by a partnership business, but is not owned within it, the rate of relief will not be affected by the new allowance and nor will it use up the new allowance.

Of course, the devil is always in the detail and there is much we still do not know. Indeed, the Government has announced that there will be a technical consultation in early 2025. This will focus on the detailed application of the allowance to lifetime transfers into trusts and charges on trust property.

Taxation of Environmental Land Management schemes

For those who have been exploring natural capital opportunities on their landholdings, the Budget 2024 announced that it will extend agricultural property relief to certain environmental land management agreements from 6 April 2025. These details were set out in the consultation response published by the previous government (https:// www.birketts.co.uk/legal-update/ spring-budget-and-agriculturalproperty- relief/) and the Labour government have confirmed that these changes will make it onto the statute books in the Finance Act 2024/25.

What is not yet clear is how these amendments will interact with the new restrictions on relief for APR, but we would anticipate that any relief for environmental land management schemes will be similarly limited to the first £1million and 50% relief thereafter as under the new rules on APR and BPR.

The Chancellor also confirmed she will bring inherited pensions into the IHT regime from April 2027.

Navigating these changes will be a significant challenge and bring the question of succession and ownership structures into sharp focus. Detailed estate planning will be more necessary than ever to manage the changed APR and BPR tax landscape and this might include setting up trusts or transferring assets to the next generation sooner than planned.

If you would like further information please contact Jack Royall, Emily O’Donnell or Sophia Key in our Agriculture and Landed Estates Teams.