The UK government first proposed changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) in the Autumn Budget in the October of 2024. Whilst the first draft of the Finance Act 2025/26 was published in the summer of last year, the government announced changes to their proposals as recently as the 23rd December 2025. It is fair to say that until the legislative changes have been passed, nothing is set in stone, albeit that it seems unlikely any further concessions will be made.
Key changes and considerations
A key change to the original proposals is that unused allowances will be transferable between spouses and civil partners. It was originally the case that allowances were not going to be transferrable and so they would have been lost if not utilised on the first death.
The transferability of the allowances is now consistent with both the ordinary nil rate band and additional residence nil rate band (RNRB).
On the 23rd December 2025, the government announced that the relief is to be increased from £1m to £2.5m. This means that couples with qualifying assets may qualify for relief at 100% on APR and/or BPR assets worth up to £5m. The ordinary nil rate bands are in addition to this and so the total ‘tax free’ sum could be anything up to £5,650,000.
APR and BPR assets above £2.5m (or £5m) will only qualify for relief at 50%, rather than the full 100% relief currently available.
The RNRB
The RNRB remains highly complex, with various qualifying criteria including:
- Qualifying residence
- Qualifying beneficiary
- Qualifying interest
Additionally, the RNRB tapers away for estates exceeding £2 million in value, reducing by £1 for every £2 above this threshold. It follows that it is unlikely the RNRB will be available to most farming families.
Interestingly, lifetime gifting does not affect the RNRB in the same way as the NRB, which may incentivise ‘death bed’ gifting.
AIM portfolios and relief capping
For those who have invested in AIM shares as part of their IHT planning strategy, relief (BPR) will be capped at 50%, regardless of the value of the portfolio. If an AIM portfolio is worth £1 million, only £500,000 will qualify for 100% relief, with the remainder taxed at 40%. However, relief on AIM portfolios will not deplete the new £2.5 million allowance.
Lifetime gifting and Potential Exempt Transfers (PETs)
The NRB is affected by lifetime gifting, and most individuals are familiar with the seven-year rule. From 6th April 2026, PETs will be subject to the £2.5 million allowance. If the donor dies within seven years of making a PET, relief will apply at a rate of 50% on the excess value, with the remaining subject to the 40% IHT rate (unless tapered).
Transitional provisions
- PETs made before 30th October 2024 will remain under the current regime.
- PETs made between 30th October 2024 and 6th April 2026 will be subject to the new £2.5 million allowance, even if the donor dies after April 2026.
- If a PET fails, the failed portion will be set against the £2.5 million allowance in the same way as NRB allowances currently operate.
Gift With Reservation of Benefit (GWROB) and planning strategies
Tax planning can be significantly undermined if a gift triggers a GWROB. This is particularly relevant for the family home, but two main strategies can mitigate this risk:
- The Pre-Owned Assets Tax (POAT), a levy to IHT via self-assessment, which avoids income tax disadvantages but may still create CGT issues due to the lack of Principal Private Residence (PPR) relief.
- Paying commercial rent under a lease with regular rent reviews (though this introduces potential income tax and capital gains tax (CGT) concerns for beneficiaries).
Capital Gains Tax (CGT) and Trusts
Historically, lifetime gifting of APR/BPR assets was not considered best practice due to the availability of a CGT uplift on death. It should be noted that:
- PETs will trigger a chargeable transfer for CGT purposes which may result in an immediate CGT charge, unless holdover relief applies.
- Gifts to discretionary trusts may be preferable, as they qualify for holdover relief. However, these transfers could be subject to an immediate 20% IHT charge, with further IHT due if the donor dies within seven years.
- If IHT arises on lifetime gifts, the combination of CGT and IHT can create an effective ‘double taxation’ scenario, complicating estate planning.
Strategic considerations for different age groups
Using a traffic light system, we can assess how different age groups may respond to these changes:
- Green (under 60): Likely to adopt a ‘watch and wait’ strategy or implement gradual lifetime gifting.
- Amber (60–80): Most likely to engage in structured lifetime gifting to maximise relief.
- Red (80+): May still consider lifetime gifting but should at least structure ownership to utilise both full allowances.
The role of life insurance
Life insurance is becoming an increasingly important tool for funding IHT liabilities.
IHT instalment option
It will be possible to pay the IHT attributable to APR and BPR assets by instalment. The instalment option allows IHT to be paid over ten years in equal interest-free instalments—providing a valuable concession for families needing to manage cash flow.
Seeking regular advice
With so much uncertainty and complexity surrounding these changes, rural landowners and business owners should seek regular professional advice to stay ahead. Proactive planning now could make all the difference in preserving family wealth for future generations.
How Moore Barlow can help
Our rural solicitors are known for being approachable professional and pragmatic, with clear communication and specialists in explaining complex areas of rural law to our clients. We can arrange meetings at your home, place of business or online, whatever suits you best.
