The Government’s decision to raise the 100 per cent Agricultural Property Relief (APR) and Business Property Relief (BPR) cap to £2.5 million has been met with cautious approval from advisers working with family farms and trading businesses.
Elizabeth Roberts, Head of Tax, says the change delivers some reassurance, but it is also a reminder of just how essential Inheritance Tax planning is.
“There is a sense of relief because this is a meaningful increase that will take many family businesses and farms out of scope,” she says.
“However, there is also realism because it is still a cap. Above it, relief falls to 50 per cent, so larger estates will continue to face an Inheritance Tax charge, although at a lower effective rate than ordinary assets.”
The combination of the higher cap and transferability between spouses and civil partners has materially improved the outlook for many families.
“Couples can potentially pass on up to £5 million of qualifying agricultural and business assets at 100 per cent relief, before even considering the usual nil rate bands,” she says.
“That is a significant shift for family operations, especially where most of the value is tied up in land, buildings and trading assets rather than cash.”
The businesses that benefit most are those that now fall fully within the expanded 100 per cent band.
“Farms and trading businesses sitting between £1 million and £2.5 million per person move from being partly exposed to likely fully covered,” she explains.
“It also helps asset-rich but cash-poor businesses, where the real challenge is often funding the tax rather than calculating it.”
Families who have already planned on the basis of a £1 million cap should not assume those arrangements are obsolete.
“Do not assume your old plan is wrong, but it will need another quick review before you finalise anything,” she says.
“Inheritance planning is never just about the headline cap. It depends on what qualifies, how assets are owned, whether Wills and partnership or shareholder agreements support the succession plan and whether valuations are robust.
“For some families, the change removes the need for rushed decisions. For others, particularly above the £2.5 million or £5 million levels, it simply reduces the size of the remaining gap.”
Elizabeth says that the advice given ahead of the tax year-end has also shifted for many clients.
“The focus now is less on panic-driven planning and more on structured planning. That includes getting valuations right, ensuring the asset mix genuinely qualifies and modelling outcomes under the new 100 per cent and 50 per cent split.
“Where estates remain well above the thresholds, time still matters because succession planning takes months to do properly.”
While she expects this to be the framework people plan around for now, Elizabeth advises caution.
“The Government has made it clear it wants to avoid unlimited relief for the most valuable estates, and this has become a politically sensitive area,” she says.
“The safest approach is to build a plan that still works if the rules tighten again, rather than relying on one allowance remaining generous forever.”
Looking ahead to the year ahead, his/her message to farmers and business owners is to be proactive.
“Do not let the headline change lull you into doing nothing,” she says. “If your wealth is tied up in a farm or business, Inheritance Tax planning is about clarity and certainty. The earlier you start, the more options you have and the fewer unpleasant surprises your family will face later.”
Thorne Widgery has more than 75 years of experience supporting individuals and businesses with all their accounting needs from its offices in Hereford & Shropshire.
For further support with succession planning or Inheritance Tax planning, please contact us.