Draft Legislation for Agricultural & Business Property Relief Reforms

As rural and agricultural business advisors, we welcome the opportunity to review the government’s recently published draft legislation outlining changes to Agricultural Property Relief (APR) and Business Property Relief (BPR), released as part of the upcoming Finance Bill. These reforms represent a significant shift in the Inheritance Tax (IHT) landscape for landowners, farmers, and business owners.

Following the initial announcement earlier this year, the new explanatory notes and draft clauses confirm the government’s direction and introduce several important technical details. Below, we summarise the key provisions:

Key Updates from the Draft Finance Bill

1. £1 Million APR/BPR Allowance Introduced
   From 6 April 2026, the maximum value of assets eligible for 100% relief under APR and BPR will be capped at £1 million. Any qualifying value above this threshold will receive relief at the new default rate of 50%. This cap applies across all qualifying assets from a single transferor within a seven-year period.
2. Indexation to Begin from April 2030
   The £1 million cap will be frozen until 5 April 2030, after which it will be indexed to the Consumer Prices Index (CPI). This differs from earlier expectations of earlier indexation and is a key planning consideration.
3. Changes to Business Shares
   From 6 April 2026, shares will only qualify for 50% relief (rather than 100%) if they are:
   • Traded on markets such as the Alternative Investment Market (AIM) that are not listed on a recognised stock exchange;
   • Traded on foreign exchanges that do not meet HMRC’s recognised listing criteria.
4. 100% Trust Relief Allowance and Anti-Fragmentation Rules
   • Trusts created before 30 October 2024 that hold qualifying property will each receive a fixed £1 million automatic 100% trust relief allowance.
   • For trusts created on or after 30 October 2024, the maximum 100% trust relief allowance is shared across all trusts created by the same settlor, capped at £1 million in total. Anti-fragmentation rules will prevent splitting assets across multiple trusts to claim multiple allowances.
5. Extension of Relief for Scottish Agricultural Leases
   Relief has been extended to apply to newer forms of Scottish agricultural leases, ensuring continuity of treatment under modern tenancy agreements.
6. 10-Year Interest-Free Instalment Option Extended
   All APR/BPR-qualifying assets (including certain business shares) will now be eligible for the 10-year interest-free instalment payment option for IHT.
7. Formal Consultation Period
   The draft legislation is now subject to technical consultation until 15 September 2025. Stakeholders are encouraged to submit views, particularly on trust interaction and asset structuring.

What This Means for Our Clients

These reforms signal a major change for rural estate planning. In particular:

• Trust and succession structures should be reviewed to avoid breaching the shared £1 million allowance cap.
• Land, machinery, and share values must be carefully monitored — most modern farming and rural businesses will likely exceed the £1 million cap across their combined asset base.
• Business owners with shares on AIM or overseas exchanges must now plan around the shift from 100% to 50% relief.

We urge all those who think they might be affected to act early, as transfers made after 30 October 2024 may fall under transitional rules and still be affected depending on future events, such as death within seven years.

Note on Transition and Indexation

The new relief caps and share restrictions come into effect on 6 April 2026. However, transfers made between 30 October 2024 and 5 April 2026 will be reassessed under the new rules if the donor dies on or after 6 April 2026 and within seven years of the transfer.

Additionally, while the £1 million allowance will be indexed, this adjustment will only begin from 6 April 2030 — not before. Until then, the cap remains fixed.

Looking for advice? We’re here to help.

We are actively monitoring developments and are available to help clients reassess their inheritance tax planning strategies in light of these changes. If you have any concerns or require tailored advice, please contact us.