Budget Summary – APR/BRP Bombshell

We have had our first Budget of the new Labour Government and there have been significant changes to the longstanding IHT reliefs that many rural businesses had based their IHT planning on.

Rachel Reeves has announced that only the first £1m of agricultural and business property qualifying for the 100% Agricultural Property Relief (APR)/Business Property Relief (BPR) rate, will continue to qualify for relief at 100% for IHT purposes.  Instead, any property held over £1m that qualifies for the 100% APR/BPR rate, will only receive relief at 50%.  This will come into effect from 6 April 2026.  It is important to note that this will not operate similarly to the Nil Rate Band, and so any unused 100% band cannot be transferred to a spouse and is lost.

Where business or agricultural property previously qualified for the 50% rate, this will be unchanged.

As a summary, property qualifying for the APR/BPR 100% rate is as follows:

• Land owned and farmed in hand
• Land used by someone else on short-term grazing licence
• Land let on a tenancy that began on or after 1 September 1995
• A business or interest in a business
• Shares in an unlisted company

Let’s look at what these changes could look like in reality.

If for example you are in a 50:50 father and son farming partnership, where all your land is held on the balance sheet, under the pre 30 October 2024 rules it would be expected that your entire partnership share would be covered fully by APR/BPR, meaning no IHT would be payable on the partnership interest.

Under the new rules, and assuming your share of the partnership was worth £2m, IHT would be charged as follows (before utilising any Nil Rate Bands/Residence Nil Rate Bands):

£1m of the partnership share would be covered by 100% APR/BPR

£1m of the partnership share would have APR/BPR restricted to a relief rate of 50%.  This would leave £500,000 subject to IHT at a rate of 40% resulting in IHT payable of £200,000.

It is important to note that any IHT liability payable on qualifying Agricultural or Business Property can be paid in instalments over 10 years. 

There are also anti-forestalling measures in place to prevent individuals from gifting property ahead of 6 April 2026 in order to avoid the £1m cap for 100% IHT relief.  Gifts made from 30 October 2024 onwards will be subject to the new £1m cap where the donor dies on or after 6 April 2026 (assuming it is within 7 years of the date of gift).

Other areas of concern

The guidance published as part of the Budget suggest that if you hold separate assets of Agricultural Property and Business Property, the £1m cap for 100% relief will be spread proportionately between the separate assets. 

It is important to remember however that where an asset qualifies for both APR and BPR, Agricultural Property Relief is always applied first.  Therefore relying on Business Property Relief to cover the value above agricultural value on say potential development land may now be in jeopardy. 

This of course could be clarified in the draft legislation once published.

Pension Pots

Pension pots will also be brought into the scope of IHT with effect from April 2027.  Currently unspent pension pots have remained outside the charge of IHT, and have provided a useful tax planning tool for providing descendants with an IHT exempt pot of cash, particularly as part of providing an Inheritance to children not involved in the business.    

What should rural businesses be doing now?

Now is the time to understand your IHT position and this should be reviewed in conjunction with your Wills and Partnership/Shareholders agreements.

With relief from IHT reducing, your future succession plans, and business structure should also be reviewed, in conjunction with understanding your “Balfour” position (see Life on the Farm Autumn/Winter 2023).  Now it may be more prudent than ever to introduce land into the Partnership, consider incorporating, restructuring or bringing forward lifetime gifting, however, every family and business will be different and so the way forward will need to be considered carefully dependant on the particular circumstances.

Other changes

In perhaps not as dramatic a change as previously feared, the general rates of CGT will be increasing to become in line with the residential property rates of 18% and 24%.  This has come into effect from 30 October.

Business Asset Disposal Relief will remain in place for the first £1m of gains and will remain at a rate of 10% until 5 April 2025.  From 6 April 2025 the rate will increase to 14% and increase again to 18% from 6 April 2026.

Hidden in the Budget documents, in a reversal of the reversal last year, double cab pick-ups will be treated as a car for the purposes of capital allowances and benefits in kind with effect from April 2025.  See our article from last year here regarding the tax changes.

The Stamp Duty Land Tax higher rates for additional dwellings will increase from 3% to 5% with effect from 31 October 2024.

Employer National Insurance will also increase from 13.8% to 15% from April 2025, although with this the employment allowance is increasing to £10,500.

Accelerated decrease in Basic Payment Scheme delinked payments was announced. Payments for 2025 will be based on 24% of the 2020 claim up to a maximum payment of £7,200, so farms that claimed in excess of £30,000 in 2020 claim will see the biggest reductions in their BPS payments.

The Carbon Border Adjustment Mechanism was announced such that with effect from 1 January 2027, a carbon price will be placed on certain imported goods that are at risk of carbon leakage; the specific impact on the agricultural sector would be on fertiliser with some suggesting this could increase the price of fertiliser by £50/tonne.

What hasn’t changed?

While there have been some big changes, it is also important to reflect on what has not changed.

• There have been no changes to income tax relief for pension contributions
• There have also not been any changes to the High-Income Child Benefit Charge and in fact the Budget has confirmed that reform to base this on household income will not go ahead.  Therefore, the limit before you repay all of the child benefit received will remain at £80,000
• There have been no changes to the IHT Nil Rate Band or Residence Nil Rate Band rules and so these remain at £325,000 and £175,000 respectively, with the Residence Nil Rate Band subject to taper on Estates worth over £2m
• The main rate of Corporation Tax will remain at 25%
• The pension tax free lump sum has not been changed and so this remains at 25% of the pension pot or £268,275 if lower
• Full expensing for plant and machinery has remained (companies only), together with the £1m Annual Investment Allowance

If you would like to review your IHT position and consider your business structure following the Budget, or discuss how other measures introduced will impact your business, please contact a member of the Agri Team.