Succession planning in focus: understanding Budget 2025 and its impact on inheritance tax (IHT)
Background
Autumn Budget 2024 included significant reforms to agricultural property relief (APR) and business property relief (BPR). From 6 April 2026, 100% IHT relief for qualifying agricultural and business assets will be capped at £1 million per individual. Assets above this threshold will only receive 50% relief, resulting in an effective IHT rate of up to 20% on the next slice of assets. This marked a shift from the previous system under which much larger estates could pass on land and business assets with little or no limit.
Transferability of unused APR and BPR: a welcome adjustment
One of the more helpful aspects of Budget 2025 is the ability to transfer unused APR and BPR between spouses and civil partners. This means that the unused portion of the £1 million relief can now be passed on. This change brings APR and BPR in line with other main IHT allowances, which may help to simplify estate planning for spouses and civil partners holding qualifying agricultural and business assets.
Continuing IHT exposure
Despite this development, the cap on full relief at £1 million per individual still means that many estates, especially those with higher land or business values, may face IHT on amounts above these limits. For many, managing potential exposure to IHT will remain an important consideration in their long-term succession strategies.
Amid the worries about capping this relief, it should also not be overlooked that eligibility for APR and BPR still depends on meeting specific criteria. Ensuring the alignment between your business structure and key documentation – including wills, partnership/shareholders agreements, and financial records – is key to achieving this. The coordination also serves to clarify asset ownership and establishes the effective procedures for the transfer of those assets in the event of retirement or death.
Thresholds frozen
Budget 2025 also confirms that IHT thresholds, including the nil rate band (NRB), residence nil rate band (RNRB), and the APR/BPR allowance, will remain at their current levels until at least 2030-31. As property and asset values rise, this is likely to bring more estates into the scope of IHT in the coming years. For farming families and business owners, staying informed and reviewing estate plans regularly becomes even more essential.
- NRB: £325,000
- RNRB: £175,000 (but tapered where an estate exceeds £2m)
- Combined APR/BPR allowance: £1 million per individual
Pension and IHT from April 2027
Looking ahead, from April 2027, most unused pension funds will be included in the estate for IHT purposes, except for certain excluded benefits. Those with larger pension savings should take note and seek advice where necessary.
- Unused pension funds and related death benefits will generally be taxed as part of the estate.
- Beneficiaries may experience some delays in accessing these funds while tax matters are resolved.
- Estates with larger pension pots could see higher tax bills.
Key points and recommendations
- The ability to transfer unused APR/BPR brings welcome flexibility, though many estates will still need to pay careful attention to potential IHT liabilities.
- Reviewing key documents (including wills, partnership/shareholders agreements and financial records) to ensure there are no inconsistencies between them and that the correct structure of ownership is known and understood, remains vital to ensuring agricultural and business assets are inherited as intended.
- Frozen thresholds and increasing asset values mean reviewing and updating estate plans is important.
- The inclusion of pension assets in IHT calculations from 2027 is another factor to consider in long-term planning.
Conclusion
While Budget 2025 does not dramatically change the IHT environment for farmers and business owners, the introduction of transferable relief is a constructive step. Careful estate planning is crucial for those wishing to protect family assets across generations. Professional advice and regular estate reviews remain key to making the most of the available reliefs and exemptions.
Contact us to discuss your estate, your options and how we can help you.
