In the Autumn Budget, the Government announced significant changes to a valuable IHT relief, APR. Under the proposed changes, effective from 6 April 2026, a £1m cap will apply to agricultural property, which is, under the current rules, wholly relieved from IHT regardless of its value. Any value exceeding the £1m cap will only benefit from 50% tax relief rather than 100% relief, leading to a considerable increase in tax liability for farmers.
Farmers should review their wills considering the proposed changes. Assets can still pass between spouses free of IHT, and when assets pass between spouses on death, there is an uplift in the asset's base cost for Capital Gains Tax (CGT) purposes despite the fact that no IHT liability arises. This can make onward gifts of assets by the surviving spouse to their children much more tax efficient.
If an individual inherits a farm that is worth £11m on the death of their parent, then that could give rise to a £2m IHT liability. This is a significant liability to meet, and if there are minimal other assets passing on death, then paying the IHT liability will be difficult. Liabilities can be paid over a ten-year period, but there would be a late payment interest cost involved.
If dividends are taken from the business to fund this liability, those dividends themselves will be subject to Income Tax, meaning that the cash burden to meet the IHT might become exceedingly heavy, especially within the farming community where liquidity can often be a challenge.
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