The recent Budget introduced significant reforms that directly impact estate planning, especially for agricultural and rural businesses.
A major change was the reduction of Agricultural Property Relief (APR) and Business Property Relief (BPR), which now caps 100% relief at £1 million in value for combined qualifying properties. Amounts exceeding this threshold will attract only 50% relief starting in April 2026. This shift increases the critical need for expert legal guidance when planning estates involving agricultural assets.
Here are the key benefits of seeking legal advice in light of these changes:
1. Maximising Tax Efficiency
- Impact of APR/BPR Reduction: Previously, APR and BPR provided full relief on qualifying agricultural and business properties, significantly reducing or eliminating inheritance tax (IHT). The new cap may expose many estates to higher tax liabilities, even for modestly sized farms. We can help optimize the use of available exemptions, including the Nil Rate Band (£325,000) and Residence Nil Rate Band (£175,000), ensuring that your estate planning strategies minimise tax exposure.
- Strategic Gifting: We can advise on transferring assets within the seven years before death, potentially reducing IHT liabilities under the taper relief system.
2. Succession Planning
- Family Farming Businesses: The reforms disproportionately affect family-owned farms, many of which exceed the £1 million cap. We can structure Wills and Trusts to balance asset allocation among heirs while retaining operational viability.
- Inter-Generational Transfers: Legal advice can facilitate tax-efficient transfers to younger generations, ensuring the farm remains a viable business while meeting new tax burdens.
3. Navigating Complexity in Rural Estates
- Integration with Other Reliefs: By combining APR/BPR with charity exemptions, life insurance trusts or alternative investments, we can develop a plan that reduces tax impact while supporting other goals.
- Post-Budget Adjustments: With the extended freeze on the Nil Rate Band and Residence Nil Rate Band thresholds until 2030, many estates face additional constraints. See our recent Budget article on the issue of “fiscal drag” here. We can help mitigate these through innovative planning.
4. Valuation and Compliance
- Accurate Asset Valuation: APR eligibility often hinges on precise asset classification and valuation. We can collaborate with valuers to ensure compliance with HMRC rules. For example, they ensure land actively used for farming qualifies for the maximum relief.
- Handling Non-Qualifying Assets: With reduced relief, non-agricultural elements such as large residential properties on farmland could be subject to full IHT. We can guide restructuring options or alternate use strategies to preserve estate value.
5. Ensuring Long-Term Viability
- Addressing the Budget’s Challenges: The £1 million cap is unlikely to cover the needs of most farms, even small ones. Legal advice ensures strategies align with long-term operational needs, such as diversifying income streams or reorganising business structures.
- Preparing for Future Legislation: With ongoing political focus on tax reform, we can anticipate and adapt to changes, safeguarding your estate.
The Budget changes signal an urgent need for agricultural businesses and rural estates to re-evaluate their estate plans. We specialise in probate and tax law and can navigate these complexities, ensuring your assets are preserved for future generations while minimising tax burdens.
Are the recent proposals a threat to farming in the UK? They shouldn’t be – provided farming families take suitable advice.
Contact us below for more guidance.