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Changes to Agricultural Property Relief (APR) and Business Property Relief (BPR): Impact and Examples - Ad Valorem

3 minutes

| December 4, 2024

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Insights

The UK government announced significant changes to Inheritance Tax (IHT) reliefs, namely Agricultural Property Relief (APR) and Business Property Relief (BPR), during the Autumn Budget 2024. This article provides an overview of these changes, highlighting how they apply from 6 April 2025 and 6 April 2026 and explores worked examples to illustrate the impact on IHT liabilities.

Changes Effective from 6 April 2025:

Starting 6 April 2025, APR will extend its scope to land used under environmental management agreements with public or responsible bodies, such as the UK and devolved governments, public bodies, or approved responsible bodies. This extension will promote sustainable land management practices, recognising the role of environmentally beneficial use within APR eligibility.

Example:

  • Pre-2025 APR Scope: A farmland estate worth £500,000 used solely for agricultural purposes qualifies for 100% APR.
  • Post-2025 APR scope with Environment Agreement: If this estate enters a government-approved environmental land management agreement, the same £500,000 qualifies for 100% APR under the new rules.

Changes Effective from 6 April 2026:

The more extensive reforms to BPR and APR take effect from 6 April 2026, introducing a tiered relief system and adjusting eligibility criteria for certain business properties. Key elements include:

  1. Introduction of a £ 1 Million Allowance for 100% relief:
    • Estates with qualifying agricultural or business property assets valued at up to £ 1 Million can still claim 100% BPR and BPR. It is important to note that the limit of £ 1 Million is for Agricultural and Business properties combined.
    • For assets exceeding this threshold, a 50% relief rate will apply on values above £ 1 Million.
  2. Reduction in BPR for “Not Listed” shares:
    • The relief rate for unlisted shares (e.g., those listed on AIM market) will be reduced to 50% regardless of the total estate value, to target reliefs for actively managed businesses more precisely.
  3. £ 1 Million Allowance for Trusts:
    • Similar to personal estates, trusts will have a £ 1 Million allowance for 100% BPR and APR on each 10-year anniversary charge or exit charge.

Worked Examples illustrating Impact:

Example 1: Estate comprising Business and Agricultural assets

  • Scenario pre-April 2026: An individual’s estate includes £1.5 Million in agricultural property and £800,000 in qualifying business assets. Currently, the estate would qualify for 100% relief on both types of assets.
  • IHT Calculation:
    • Agricultural Property Relief (APR): £ 1.5 Million at 100% = £1.5 Million relief.
    • Business Property Relief (BPR): £ 800,000 at 100% = £ 800,000 relief.
    • Total relief: £ 2.3 Million.

  • Scenario Post-April 2026: Under the new rules, the estate’s total relief will apply only up to £ 1 Million, the reminder qualifies for 50% relief.
  • IHT Calculation:
  • APR: £ 1.5 Million is split as follows:
    • £ 600,000 (pro-rata portion of the £1 Million combined allowance) at 100% = £ 600,000 relief
    • £ 900,000 at 50% = £ 450,000 relief
  • BPR: £ 800,000 is split as follows:
    • £ 400,000 (remaining portion of the £1 Million allowance) at 100% = £400,000 relief
    • £ 400,000 at 50% = £ 200,000 relief
  • Total Relief: £ 1.65 Million (previously £ 2.3 Million)

Resulting Increase in IHT: The reduction in relief translates into a higher taxable estate, potentially increasing the IHT liability.

Why Estate Planning Matters More than Ever

With these changes, proactive estate planning is essential to avoid unexpected IHT liabilities. The tax team at Ad Valorem Group has extensive experience in IHT and estate planning, helping clients navigate complex relief rules and develop strategies that protect assets effectively. Early planning enables you to make full use of reliefs, exemptions, and allowances—key to minimizing IHT liabilities and preserving more wealth for future generations.

We encourage individuals and families to seek advice as soon as possible, particularly in light of the upcoming reforms, to ensure their estates are structured advantageously. For more information and to discuss how Ad Valorem Group can support your estate planning needs, please contact us for expert guidance.

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