Emily O'Donnell is a private client partner at Birketts LLP specialising in advising rural landowners and farmers. She said: "Disappointingly for many, the Government has made little concession to extensive lobbying from both the rural and business communities and whilst the legislation is still subject to amendment, it seems highly unlikely that there will be any material changes."
After many months of uncertainty following the sweeping changes to the availability of Agricultural Property Relief (APR) and Business Property Relief (BPR) announced in Chancellor Rachel Reeves' Autumn Budget 2024, draft legislation has now been published.
As perhaps anticipated, this is broadly in line with the initial proposals and subsequent consultation on the application of the rules to trusts.
Importantly, the draft legislation confirms that the 拢1 million allowance will not be transferable between spouses 鈥� put simply 'use it or lose it.
Farming lobby 'largely' ignored
Disappointingly for many, the Government has made little concession to extensive lobbying from both the rural and business communities and whilst the legislation is still subject to amendment, it seems highly unlikely that there will be any material changes.
Those considering the succession of their farms and businesses, will need to take action quickly to consider whether it would be beneficial to make gifts of business property/agricultural property prior to the implementation of the new rules from April 6.
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Existing trusts should also be reviewed to establish the extent to which the new rules may impact them and when they will impact.
Despite hope in some quarters that Government would listen to the powerful lobbying efforts from across the rural community, the legislation broadly enacts the changes as announced and which will take effect from April 6.听
What farmers need to know听
In summary:听
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Individuals will have a 拢1m allowance to reduce the taxable value of assets that qualify for 100% APR and BPR (applied proportionately across the qualifying property) and relief will be 50% thereafter, an effective 20% tax rate on the value of property in excess of 拢1m
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The allowance will not be transferable between spouses
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If an individual makes gifts and survives for seven years, the allowance will 'refresh' which gives rise to gifting strategies (whether outright gifts or gifts into trust) of agricultural and business assets听 听
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In a small concession, Government has confirmed that the 拢1m allowance will be index linked from 2030听听
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Trusts in existence before October 30 2024 will have a separate 拢1m allowance which will be available to relieve periodic tax charges and exits from the trust. This will also be available to trusts which become relevant property trusts, for example, on the death of a life tenant
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Similarly, trusts created now will benefit from a 拢1m allowance which will be split between multiple trusts created by the same settlor in a chronological basis
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In further limited concessions, Government has confirmed it is not looking to enact anti-fragmentation rules that would seek to apply 'related property' rules to assets which are held across a number of different trust structures established by the same settlor.听
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The legislation also confirms that it will be possible to pay any IHT on all qualifying agricultural or business property (whether relievable at 100% or 50% relief) by equal annual instalments over 10 years interest free.听
Clearly the changes will have a significant and far-reaching impact on the succession plans of many farming families, estates and rural businesses and with limited time remaining before April 6听to take action.
This will include consideration of ownership 鈥� are all available allowances being maximised?
Are wills still fit for purpose?
Is gifting assets to the next generation appropriate and/or affordable?
Might trusts offer a solution if there are asset protection issues and a need to retain overall control?
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If gifts are made, is life insurance available to cover the Inheritance risk of a death within seven years?听听听
Of course, consideration of these issues is not straightforward especially when coupled with wider, more emotive, succession discussions about which family member might be ready, able and willing to take over the farming business and how provision is made for those off-farm.听
Nonetheless, these are pressing issues, and those who have yet to take action should do so as soon as possible.听
