The Budget announcement and impact on diversification

The changes to Inheritance Tax (IHT) announced in the October 2024 Budget caused a shockwave through the farming industry. Many farming families are now considering their plans for passing property and other business interests sooner rather than later.  This is likely to be standard practice in 2025 as more information becomes available and the results of the proposed consultation on the subject are announced. In the meantime, families with more elderly members still holding significant property interests are likely to take action early. Some are considering starting the 7 year clock; being the required time of survival after a gift is made before it falls out of the Estate for IHT purposes.

The changes to the IHT rules are also likely to impact on appetites for and structures of diversified enterprises on many farms going forward.  The £1m cap per individual on combined relief for Agricultural Property and Business Property will see a much wider spreading of business interests across members of a typical farming family. This is likely to extend to new diversified businesses now resting with younger generations to take and drive forward. 

As a result of the proposed changes, a number of families may now be prepared to consider non-trading diversified enterprises that do not attract any IHT relief. That is if they believe that to forgo the proposed new 20% of IHT relief on a trading enterprise is now not enough to take on, what some may feel, is an added burden of creating a trading activity.  To this end we may see more property letting activities that could arise from this line of decision making.