Following the introduction of the restriction to Agricultural Property Relief (APR) and Business Property Relief (BPR) to £1m at 100% in the 2024 budget, farmers and other business owners have been forced to consider succession planning more quickly than they had expected. Historically, with the availability of 100% relief on qualifying property, and the CGT uplift on death, the advice prior to October 2024 had often been to hold on to property until death and pass on to the next generation at that stage.

In the space of the last 12 months, there have been numerous protests by farmers up and down the country, representations from industry bodies and several consultations on the matter which have recommended changes to reform the new rules to provide additional relief to working farmers to ensure that farmland in particular can be passed to the next generation without incurring significant levels of taxation. A notable omission over the past year has been the lack of publicity around the restriction to Business Property relief, as whilst farming businesses are impacted disproportionately by these new rules as a result of the high capital value and low returns, these changes will impact all privately owned businesses and all business owners should consider their exposure and how best to mitigate these potential future liabilities. Talk of increasing these thresholds, or reducing available relief where estates exceeded a certain value, has not materialised.

The announcement in the Budget has allowed for the £1m 100% allowance to be passed to a surviving spouse where it is not used on the first death, if the first death is after 6 April 2026. A key concession here is that if the first death arises before 6 April 2026, there is an addition of £1m to the surviving spouse’s allowances, regardless of whether APR/BPR was claimed on the first death. This is significant – for family businesses where one spouse has died and their share of assets passed either to the next generation or to a trust and APR/BPR claimed, the survivor will have £2m of allowances available at 100%, potentially in addition to an unused transferable nil rate band from their spouse.

A simplified example has been illustrated below for a larger farm, owned 50/50 between Mr and Mrs Gibbs. Mr Gibbs died in January 2025, and left his entire share of the partnership directly to his eldest son which qualified for full APR and BPR. No Nil rate band was used on the first death. The total farming business was valued at £10m in total. In practice, it is likely that at least some element of the farmhouse would not qualify for APR, and that there may be other assets outside of the farming business chargeable to IHT. To model the calculations, and assuming Mrs Gibbs died on 1 January 2027, the IHT position would be as follows:

Whilst a significant liability remains on the estate, the benefit of the additional £1m 100% allowance in addition to the transfer of assets on the first death has reduced the IHT charge across both deaths on £10m of assets to £340,000, an effective rate of 3.4%. For recent deaths, advice should be taken to ensure that the claim to APR/BPR is maximised on the first death by use of a Deed of Variation if assets have passed by Will to the surviving spouse if still within the time limits.

Over the past year, where assets are not owned equitably between husband and wife the advice has often been that assets should be transferred to the non-asset owning spouse. This would ensure that the £1m allowance is not wasted on their death if after 6 April 2026 and they were to die first without any qualifying assets in their estate. Whilst the £1m allowance would now transfer to the surviving spouse, allowing the surviving spouse to claim £2m of relief at 100%, reconsideration of Wills and how assets are held is still critical.

As another simplified example, Mr & Mrs Martin own 100% of the shares in the family business, which is a trading company qualifying for BPR. They also own a home jointly, valued at £350,000. The shares in the company are valued at £3.6m in total, owned 50/50 between them. Currently, they have mirror wills which pass all assets to the surviving spouse on first death, and to their only daughter on the second death. On this basis, on the second death the IHT calculation would be as follows:

Due to the tapering of the Residential Nil Rate Band (RNRB) on estates which exceed £2m, there is an IHT charge on the second death of £200,000. However, with planning to pass assets to their children on Mr Martin’s death in May 2026, the calculation would be as follows:

As each of the estates are now valued at less than £2m before reliefs are applied, the residential nil rate band is available in full, reducing the IHT exposure by £140,000.

Whilst on the surface, the ability to transfer the APR/BPR allowance would seem to be a concession by the government to remove the requirement for couples to both own assets to benefit from relief, careful consideration must still be given to ensure that allowances are utilised in the best way. The addition of the full transferable allowance to those widowed before 6 April 2026, giving them up to £2m of relief at 100% against qualifying property, is an unexpected, but welcome surprise.

The above article is based on legislation in force as at 27 November 2025 and interpretation of announcements made at the Budget 2025. Tax legislation may change in the future and therefore the above does not constitute advice. Please contact Daniel Crutchfield, or your usual Shaw Gibbs contact to discuss your personal situation.