The Autumn Budget – What It may mean for rural landowners and trustees of trusts comprising of rural land.
This time last year there were rumours that the previous government led by the Conservative Party were seeking to abolish Inheritance Tax (IHT) provisions entirely; now, fast forward to today, we are in a completely different situation under the newly elected Labour administration. Speculation is rife that the government will make changes to IHT provisions in the upcoming Autumn budget which is to be announced on 30 October 2024.
These changes are expected to be in the opposite direction in which the Conservatives were seeking to go last year. Therefore, many are eagerly anticipating the announcement of the Autumn budget to see if they are in for a fright the day before Halloween. Rural landowners who typically have assets on paper that exceed the current standard IHT thresholds for exposure, are potentially some of those that could be directly impacted by changes in the coming weeks. This article will briefly explore some of the possible changes to IHT provisions that may be announced which should be in the minds of rural landowners and trustees of rural portfolios.
The potential removal or adjustment of Agricultural Property Relief (APR)
Currently, many rural landowners benefit from relief from IHT liability due to various exemptions for agricultural land. The rules on eligibility are complicated but in some cases relief from IHT can be as much as 100%, if the correct criteria are fulfilled. Whilst the Labour government has given no express indication that they wish to remove APR in its entirely, it is certainly not out the realms of possibility.
It is however, more likely that if changes are to be made to APR that this would constitute alterations more akin to “shifting the goalposts”. As an example, the government may increase the time periods needed to qualify for APR. Alternatively, they may tighten the list of activities that are considered to be agricultural for the purposes of APR. As another option they may alter the amount of relief that is available by either introducing caps on total amounts eligible or by adjusting the percentages of relief available. Whilst it is impossible to accurately speculate if there are to be any substantial changes to APR it will be prudent for rural landowners to keep aware of any changes that are made in the upcoming budget.
A reform of Business Property Relief (BPR)
A significant amount of rural property that does not benefit from APR instead benefits from BPR through rules designed to facilitate the handover of smaller businesses between predominately family members, whilst minimising IHT exposure. Again, the rules of eligibility are complicated but reliefs of up to 100% from an asset’s IHT liability can be obtained if the correct prerequisites are met. BPR, like APR is unlikely to be removed in its entirety in the upcoming budget but significant changes are possible.
Like with APR, there could be some potential altering of the rules to make claiming BPR less beneficial for more people. For example, a maximum amount of relief per person could be introduced or changes to the requirements for eligibility could be made with regards to the trading requirements of a business. Similar to the situation with APR, those concerned with potential IHT liabilities should monitor whether any changes are made.
Some other potential changes to IHT and trust taxation
There are numerous other ways the government could change the current IHT provisions. For example, the general rate of IHT could be increased from 40%, the general thresholds could be changed (from £325,000) or residential property relief (currently up to £175,000) could even be removed.
Additionally, currently when a person dies their estate’s assets are in most cases not liable for Capital Gains Tax (CGT) and just have to consider IHT. Yet, this could be changed to in effect have a double death tax – with CGT being due for the appreciation of an asset in the deceased’s lifetime and also IHT being due in addition for potentially whatever remains. There are also suggestions that the provisions relating to the lifetime gifting of assets (also known as Potentially Exempt Transfers or PETs) could be made. Such changes could include extending the period of time needed for a gift to be exempt or even introducing a lifetime cap on IHT free gifting. All of these potential changes would need consideration by any estate if announced. Trusts too could be impacted by the changing of various tax rules such as changes to Principal Charges whereby some trusts have to pay tax every 10 years of their existence.
What happens now?
As aforementioned, the definitive list of details for changes are still awaited until 30 October 2024. It is however hoped that any significant change will be introduced only following consultation, so as to permit time for taxpayers to plan for any new regime. Those with agricultural assets though, who are heavily dependent on the availability of a current relief (such as APR or BPR) or those looking to pass on significant amounts of wealth to the next generation by lifetime gift may want to start bringing forward their planning before any changes to the current regime are made in the autumn. We have been asking our clients to ensure instructions are confirmed to us by the end of September 2024 so we can process these restructures in time for the budget.
The position of trustees overseeing trusts
Trustees do have various duties in administering a trust but it is unlikely that trustees will be liable if they do not act on the current speculation about changes to the taxation of trusts. If, however, the trust they are managing is not currently being managed in a tax efficient way or if changes are announced in the Autumn budget then trustees should consider professional advice if uncertain on what they should do.
How Moore Barlow can help
Moore Barlow has a team of leading legal experts who are country people themselves and can genuinely empathise with you, your business and your opportunities and challenges.
Our long-standing clients include owners of landed estates, farms, large country homes, polo and racing businesses, stud farms, veterinary practices and horticultural businesses.
We advise on all aspects of rural affairs including employment, property litigation, regulatory, residential property, land development and commercial property law. We work closely with you and your financial advisers, accountants, agents, or business consultants to protect the needs of all your family.