In my initial comments on the Autumn Budget 2024 (see here), and in our more detailed analysis (see here), I noted that the government had proposed inheritance tax changes that would cap the total of 100% Agricultural Property Relief (APR) and Business Property Relief (BPR) to £1m per person, with any excess value qualifying for 50% relief. These changes are set to take effect from 6 April 2026.
As a firm, we had anticipated a significant curtailment to BPR (and worked on the basis of an abolition as a worst-case scenario), the announced cap is less severe than expected. We also foresaw changes to APR (albeit not necessarily for those owner-managed farms, thinking landlords were most at risk), and implemented a significant amount of planning before 30 October 2024 to attempt to counter this, which has now proven highly beneficial for relevant clients.
As a seasoned accountancy firm in Cornwall, RRL strongly believe that being a good advisor means predicting change (where possible and practical) but also reacting calmly to change when it comes.
There has been a lot of hyperbole and handwringing in the popular press and in other circles regarding these changes (particularly in relation to APR), hands being thrown up in the air with momentum gathering pace, but this seems panic driven without consideration for the actual impact for the majority of relevant businesses after informed consideration.
Whilst the changes are obviously not favourable, with prudent planning, the vast majority of businesses will escape the impact of the proposals.
Crucially, the announced £1m threshold/cap is per individual – with prudent Will planning (advice and adequately worded Wills – which together with our sister legal business, RRL Wills Limited, we can provide) each owner of the business can ensure that this £1m cap/threshold is available to them. This £1m threshold is in addition to available nil-rate bands.
Additionally, the government confirmed that trusts created after 29 October will obtain a £1m cap/threshold – whilst detail is not yet available, we would expect this to be shared between trusts created by the same settlor. Consequently, subject to the publication of further detail (expected early 2025), we are expecting prudent lifetime trust planning to entail each business owner/farmer being able to ensure £2m falls outside of their respective estate but still within the business owner/farmer control. Therefore, for a husband and wife owned business/farm, £4m could be free of inheritance tax with prudent Will planning and lifetime trust planning.
This is magnified when children are also brought within the business.
The fundamental key to prudent inheritance tax planning for business owners/farmers will be:
- businesses and business owners need to consider and implement succession planning earlier than they have before (changing the previous mentality of holding all the business interest until death – relying on 100% BPR and/or APR); and
- to obtain regular advice from a good, experienced and competent tax advisor – being prepared to accept that associated costs are an investment in mitigating the impacts of sizeable inheritance tax liabilities in the future.
This was the mindset of our clients who engaged in pre-Budget planning to manage the impact of these changes. However, whilst that “ship has sailed” (given rules around any gifts made from 30 October 2024), there are still plenty of planning opportunities available for the vast majority of businesses.
Please don’t panic. There are always solutions and planning opportunities available. Now, more than ever, good, prudent tax advice is essential, and RRL’s tax specialists in Cornwall are here to help.