Inheritance Tax Changes for Family Businesses and Farms: What You Need to Know

For many years, family businesses and farms have benefited from generous Inheritance Tax reliefs that helped them pass from one generation to the next without a large tax bill.

However, the rules have changed, and some families may now face an Inheritance Tax charge where previously none would have been payable.

What Are APR and BPR?

You may have heard professionals talk about:

• Agricultural Property Relief (APR), which applies to qualifying farming assets.
• Business Property Relief (BPR), which applies to certain business assets and shares.

These reliefs were designed to allow family farms and businesses to continue operating after an owner’s death, without assets needing to be sold to pay Inheritance Tax.

What Has Changed?

Previously, qualifying business and agricultural assets could often receive 100% Inheritance Tax relief, regardless of their value.

Under the new rules, a £2.5 million allowance applies to qualifying APR and BPR assets.

• The first £2.5 million of qualifying assets can still receive 100% relief.
• Qualifying assets above £2.5 million will generally receive 50% relief rather than 100% relief.

This means some estates may now face an effective Inheritance Tax charge on assets that were previously fully protected.

A Simple Example

Imagine a family business worth £4 million.

Under the old rules, the entire value may have qualified for 100% relief.

Under the new rules:

• The first £2.5 million could qualify for 100% relief.
• The remaining £1.5 million may qualify for only 50% relief.

As a result, there may be an Inheritance Tax liability that did not previously exist.

Will All Family Businesses and Farms Be Affected?

Not necessarily.

Many smaller businesses and farms will still fall within the available reliefs and allowances. The Government has stated that most estates claiming these reliefs are expected to remain unaffected.

However, larger farming and business estates may need to review their succession plans and potential tax exposure.

What About Married Couples?

There is some good news.

Unused relief allowances can be transferred between spouses and civil partners. This can significantly increase the amount that a married couple or civil partners can pass on before any Inheritance Tax becomes payable.

Can the Tax Be Paid Over Time?

Yes.

The Government has extended the option to pay Inheritance Tax by instalments over a period of up to ten years for assets qualifying for APR or BPR.

This may help families avoid having to make immediate sales of business or farming assets.

What Should Business Owners and Farmers Do Now?

If you own a family business, shares in a private company, or agricultural land, now is a sensible time to review your plans.

Consider:

• Reviewing your Will.
• Looking at how your business or farm is owned.
• Reviewing succession plans.
• Considering lifetime gifts where appropriate.
• Seeking professional advice on your potential Inheritance Tax exposure.

The Bottom Line

The new APR and BPR rules do not mean the end of Inheritance Tax relief for farms and family businesses. However, they do mean that some larger estates could face tax charges for the first time.

By taking advice early and reviewing your arrangements, you can help protect your business, your family, and the next generation.

At Bowling & Co Solicitors, our Private Client team can help you review your Will, succession planning and Inheritance Tax position to ensure your arrangements remain fit for purpose under the new rules.

Speak to Our Private Client Team

The new allowance means that some family businesses and farms will face an Inheritance Tax bill for the first time, and the right response will depend on how your assets are owned and who you want to pass them to. Taking advice early gives you the widest range of options.

Whether you own a family business, a farm or shares in a private company, or you are dealing with an estate that includes business or agricultural assets, our team would be pleased to help.

Call 020 8221 8000, email info@bowlinglaw.co.uk or get in touch online. We will talk you through your options and take the pressure off. You can also find out more about our private client and lifetime planning services.

This is not legal advice; it is intended to provide information of general interest about current legal issues.