More than four months since the Chancellor’s bombshell announcement to restrict Agricultural Property Relief (APR) and Business Property Relief (BPR), the Government has made no changes to its proposed plans, despite widespread opposition and many suggested alternatives.
This means that the majority of working farmers, as well as some family businesses in other industries, are facing an Inheritance Tax (IHT) liability if they die after 5th April 2026.
Alternative proposals were again put forward to treasury officials and a DEFRA minister at a meeting with industry groups, including the NFU, CLA, the Central Association of Agricultural Valuers and the Tenant Farmers Association, on February 18.
It is claimed such proposals, outlined below, would raise almost the same amount of revenue as the Chancellor’s plans. In my view, this would result in a much fairer outcome, however, unfortunately, it seems that the plan was dismissed.
What do current IHT reliefs achieve?
The purpose of APR and BPR is to ensure that anyone inheriting agricultural or business property would not have to sell part or all of it to pay the Inheritance Tax due.
The current system achieves this by giving 100% IHT relief on property that meets the qualifying conditions. However, it does not require the person inheriting property to retain it for any minimum period.
This means that it is attractive for non-farmers to purchase agricultural land, which can qualify for 100% APR in as little as two years, and definitely after seven years.
It does not matter whether their heirs are interested in farming, as the land can be sold shortly after it is inherited without any IHT being paid.
This has contributed to the price of land rising to more than its true economic value. On a similar theme, the current system has also encouraged farmers to “die with their boots on”, as converting their land into cash would result in a much higher IHT bill.
Alternative solutions
The alternative proposal put to the Government at the meeting on February 18, 2025, was that the IHT saved as a result of an APR or BPR claim should be treated as a deferral of tax that would become payable when the land in question is sold.
There have been a number of variations of this idea put forward in recent months, with some suggesting a full clawback of the IHT regardless of when the land is sold, whilst others advocate a tapered clawback for 10 years after inheritance.
Either way, those who inherit land and retain it will benefit the most from APR, which is how the system should operate.
Lifetime limit on IHT reliefs
The reason the Autumn Budget proposals are so unpopular, is that they represent what accountants call a “dry” tax charge – a tax bill where there is no cash generated to pay it. A clawback system would remove or reduce this issue, as the tax will be payable out of sale proceeds.
I will not comment on whether a lifetime limit on APR and BPR should be retained under an amended system, as it can be argued that the genuinely wealthy should bear a greater share of the tax burden.
However, it is to be hoped that if it is retained, it will be set at a much higher level than £1m so that the typical farming business will not be impacted.
Planning for change
Sadly, and despite the efforts of industry leaders and campaigners across the country, it looks as though the Chancellor is determined to push ahead with these changes, and is not prepared to listen to alternatives, regardless of their merits.
A final frustration for professionals trying to advise on these changes is that the Government has not yet published any draft legislation, and apparently we will not see anything for several months.
Despite this, it is important that farmers start planning – while not putting anything in place until we know the details of the legislation – to minimise the impact of the changes on their businesses.
