Autumn budget: APR and BPR

Answer

In the autumn budget, the government announced that it’s going to reform agricultural property relief (APR) and business property relief (BPR) from 6 April 2026. These are critical tax reliefs for business owners, rural businesses and landed estates.

APR and BPR are currently available on qualifying agricultural and business assets at a rate of up to 100%.

In the autumn budget, it was announced that the reliefs would be changed so that 100% relief will be limited to the first £1 million of combined agricultural and business property. Any agricultural or business assets above that threshold will be subject to inheritance tax (IHT) but at a discounted 50% rate. In other words, a rate of 20% IHT on death (reduced from 40%); and a maximum rate of 3% IHT for 10 yearly and exit charges from trusts (reduced from 6%).

The government has also reduced the relief from 100% to 50% for all business shares designated as ‘not listed’ on the markets of recognised stock exchanges such as the Alternative Investments Market (also known as AIM). These changes are to take place from 6 April 2026.

How will these changes impact business owners?

These changes to APR and BPR are profound and, in many cases, will require a review of strategy for all business owners.

There are longstanding policy reasons for the existence of APR and BPR. They have operated to ensure that family farms, businesses, and landed estates can remain intact and capable of being passed to the next generation.

Owners work, preserve and improve the assets for their lifetime, try to keep them operational and intact, and then pass them on so that the next generation can continue to deliver value for the greater good (often as wealth creators, food producers and employers). Ownership of these assets is often accompanied by commercial risk, economic pressure and expense, with significant investment required on a daily basis.

The farming community is understandably concerned by the changes, with fears that the measures will be catastrophic for an industry that’s already facing significant challenges. There are fears that farms and businesses will need to be broken up and sold (in whole or in part) to meet the IHT liability arising on the death of an owner. 

Importance of succession planning

From an advisory perspective, we await the detail of how these changes to APR and BPR will work in practice – there’s no draft legislation as yet. However, faced with impending change, minds are focusing on what can be done to plan ahead.

There are options to explore. The budget made no mention of amendments to the seven-year rule for gifting assets for IHT (where the value of assets fall out of the IHT net if they’re given away with no strings attached and the donor survives seven years). Capital gains tax (CGT) gift holdover relief, which can apply to business assets and agricultural assets in the right circumstances, was also untouched – this can help to facilitate lifetime planning without generating a CGT liability. 

Combined, these remain two valuable estate and tax planning tools for business owners.

Transfers into trust (with 100% APR/BPR and in the hope of surviving seven years) may also be a valuable tax planning tool. We’re expecting this to be an attractive option for business owners who currently own shares or business interests that qualify for 100% BPR, particularly if they’re considering ‘exiting’ or selling their business.

The government has introduced anti-forestalling rules so that any transfer made on or after 30 October 2024 will be caught by the restricted reliefs if the donor dies after 6 April 2026 and within seven years of the gift.

This is an important point, no doubt, but if the donor implements the strategy in enough time and survives seven years then planning can still be effective.

This is, of course, subject to the donor retaining sufficient value and comfort for their own retirement, and a careful balance will need to be struck.

Life assurance (if affordable) can also help to protect against the seven-year period of IHT risk following a gift, and we expect this to be increasingly important as part of an overall succession strategy.

We must also not forget that 100 per cent relief will continue to apply to the first £1 million of business or agricultural property.

This 100 per cent relief appears to apply per person and so it could be necessary for married couples to equalise assets, and to ensure that any relief is 'banked' via their wills on the first death. This is an important planning point, as the government has indicated that the relief isn’t transferable on death. Existing wills should be reviewed.

Looking to the future

These changes to APR and BPR are significant, and the timing of robust succession planning is going to become even more important.

Estate succession and retirement plans should be considered extremely carefully, as soon as possible, and well in advance of 6 April 2026.

However, as the dust continues to settle following the autumn budget, it’s important to remember that there are options for structuring and ensuring that these assets can continue to be passed on efficiently, even in times of concern and impending change.

 A version of this article was published in FT Adviser.

Megan Davies is a trainee solicitor at Michelmores LLP.