Inheritance Tax

The Autumn Budget of 2024 was memorable for many reasons, the first ever by a female Chancellor (how did it take over 800 years for that to happen?), the first by a Labour Chancellor for more than 14 years, and the first changes to some of the main Inheritance Tax exemptions since Inheritance Tax replaced Capital Transfer Tax over 40 years ago.

Changes to Agricultural Relief and Business Relief

At present there is a 100% exemption to IHT for a qualifying asset provided it is owned and occupied for agricultural purposes immediately before its transfer for over 2 years.  If the owner does not occupy the property (for example farms let out to a tenant) the holding period is 7 years.

In the case of agricultural assets this includes growing crops, farm buildings, farm cottages and farmhouses but not farm equipment and machinery, derelict buildings, harvested crops or livestock. One way of remembering this is to think about turning a farm upside down, things that do not stick to the land would not qualify for Agricultural Property Relief.  Another condition is that the property cannot subject to a binding contract for sale.

Assets qualifying for Business Relief presently enjoy a 100% or 50% exemption from IHT if held for 2 years and are not subject to a binding contract for sale.

At present, there are two levels of relief:

A 100% exemption applies to:

• A business or interest in a business
• Shares in an unlisted company (including AIM shares)

A 50% exemption applies to:

• shares controlling more than 50% of the voting rights in a listed company
• Land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled
• Land, buildings or machinery used in the business and held in a trust that it has the right to benefit from

There are certain types of business that do not qualify for business relief for example one that mainly deals with securities, stocks or shares, land or buildings or in making or holding investments.

What has changed?

From 6^th April 2026 the full 100% relief will be restricted to the first £1m of combined agricultural and business property after which a 50% relief will apply.

In addition, the rate of business relief will be reduced to 50% on all shares designated as ‘not listed’ on the markets of recognised stock exchanges such as AIM.

The new £1m limit will only apply to property qualifying for the 100% agricultural or business reliefs. AIM share portfolios will not use up the £1m allowance and there is no transferability of this allowance between spouses or registered civil partners.

The £1m limit can be used on death, for failed potentially exempt transfers (made after 30^th October 2024 for deaths after 6^th April 2026) and for Chargeable Lifetime Transfers made after 30^th October 2024.

The £1m allowance can be enjoyed by each relevant property trust (discretionary or interest in possession trusts) set up before 30^th October 2024 but it appears (further details are promised by HMRC in the new year) that it must be shared between any such trusts set up after this date.

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Source: Article “Inheritance Tax – the times they are a-changin’” was written by The ZISHI experts, and published in the Advice Matters Magazine | December 2024 |

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