HM Revenue and Customs (HMRC) have been unsuccessful in their appeal against a decision that a dividend received by a man in the 2016/17 tax year was paid for Income Tax (IT) purposes in that year, even though another shareholder had received the dividend in...
APR/ BPR Reform- what/ where next?
In a few short minutes (if not seconds) the Autumn Budget announced seismic changes not only for agriculture but for family businesses as a whole. Since then much has been written and said; what is clear is that the current proposed restriction on the availability of 100% Agricultural Property Relief (APR) / Business Property Relief (BPR) relief for Inheritance Tax (IHT) is likely to have a significant impact on families and businesses in all sectors, not just agriculture.
The full extent of that impact is unlikely to be known for some time, but in the short to medium term this policy change may well reduce growth, innovation and development as family businesses take time to consider the changes and what to do next.
So what / where next? So far we know that the new rules will not come into full force until April 2026. However, the Government has published a policy paper explaining the background and reasons for the changes - Summary of reforms to agricultural property relief and business property relief - GOV.UK . It has also said that it will be conducting a Technical Consultation in early 2025 with the focus of that consultation being on the implementation of the new policy, particularly in relation to trusts, with the outcome of this consultation being used to inform the necessary legislation to be included in a future Finance Bill. As a result, it is unlikely that there will be any further significant information from the Government for some time, and we may not see the wording of the legislation bringing in the changes until after the next Budget.
On the one hand, this delay could be useful, because it means that there is still time to influence the Government and the policy. However, it also means that we are left in a state of limbo where we know that the changes are coming but we do not have all the information to effectively plan for them. So what can be done in the meantime?
- Stay calm and take advice- no one likes uncertainty but the worst thing to do right now would be to make a snap or rash decision, which you may later regret.
- Support your neighbours and friends- coupled with other changes and challenges facing agriculture and business as a whole, this policy change could for some be one-step too far. It is therefore important that we support each other and encourage those in need to seek help (or, where necessary, seek help on their behalf). For those involved in agriculture, the Farming Community Network are there to help - Health - Farming Community Network
- Support and work with your relevant lobbying/trade organisation, be that the National Farmers Union, Country Landowners Association, the Federation of Small Businesses or any other similar organisation/association – and where you don’t think that organisation understands the potential impact of these changes, speak to them and make them aware in a calm and considered way.
- Lobby/write to your MP particularly, if he or she is a Labour MP – there have already been reports in the press that some backbench Labour MPs are nervous of this policy change and so the more pressure that can be placed on them by their own constituents the better. However, again this needs to be done in a calm and considered way. It is also worth writing to your MP even if they are not Labour – it is important that all political parties understand the impact that these changes will have.
- Take time to consider:
Your business / asset value – what is the value of your land and buildings, operating equipment and business(es) as a whole?>
It is very important to remember that the proposed £1,000,000 100% relief allowance is a combined allowance for all qualifying agricultural property and business property that an individual owns or has an interest in. IHT will then be chargeable at a rate of 20% against the value of any agricultural property/business property that exceeds this £1,000,000 cap, subject to the availability of any other reliefs / allowances such as the £325,000 nil-rate band and the £175,000 residence nil-rate band (RNRB).Keep in mind that the RNRB decreases for estates worth over £2m.
For farmers and landowners any valuation therefore needs to consider not only the value of any agricultural land and buildings but also all other business assets such as livestock, machinery and equipment, plus other stocks and stores, together with any other business interests that an individual may have whether they are related to or entirely separate from the farming enterprise.
Some of this may be clear from business account balance sheets but some, particularly the value of any land and buildings (which is often shown at a historic base value) may not be. Obtaining an updated valuation may be sensible even if, at this stage, it is just an estimate in the form of a market appraisal undertaken by a selling agent (i.e. not a formal valuation undertaken for tax planning purposes, which may be necessary in time). A current valuation will help you form a basic understanding of what your potential IHT liability under the new rules may be. In this regard, it should also be remembered that IHT is levied against the value of your net estate after the deduction of any liabilities such as bank loans and other debts.
It will also be important to understand the value of any non-agricultural/non-business assets that an individual may own (or have an interest in), which from April 2027 will also include pensions. This is because whilst they may not impact on the £1,000,000 100% relief allowance, they will still have an IHT impact and use up the whole or part of an individual’s nil-rate band.
Your business ownership/ structure and succession plans – who owns what and how is it owned? What does the next generation want to do?
If succession discussions have not already taken place, then now is the time to start them; or where they have perhaps stalled or fallen away because other pressures have taken over, take the opportunity to pick them up again.
Whilst the £1,000,000 100% relief allowance is not going to be transferable between spouses / civil partners, it does still effectively equate to a £2,000,000 100% allowance for a married couple / civil partners.
As noted above, the £1,000,000 100% relief allowance is also in addition to other existing allowances/reliefs such as the £325,000 nil-rate band and the £175,000 residence nil-rate band (RNRB), which may help in some situations. This means that subject to careful IHT planning, in circumstances where the RNRB applies and the value of an individual’s net estate is below £2,000,000, there could be an effective 100% allowance of £1,500,000 per person or £3,000,000 for a married couple / civil partners. In situations where the RNRB does not apply there is an effective 100% allowance of £1,325,000 or £2,650,000 for a married couple / civil partners.
The spouse / civil partner exemptions for both IHT and CGT also still exist and therefore for some it will make sense to move assets from sole names into joint names and / or ensure your wills are structured correctly to ensure that the full benefit of the £1,000,000 100% allowance is utilised on both deaths.
In addition, despite pre-budget rumours that it may be increased to ten years, the seven year rule also still currently exists. Therefore, whilst any gift made after the 30 October 2024 will use up part of / the whole of the £1,000,000 100% relief allowance if the donor dies after April 2026 and does not survive the full seven years, for some businesses / families starting the seven year clock ticking now is likely to make sense.
However, it is important to remember that there are complex rules relating to ensuring that the donor of any gift does not continue to derive a benefit from the gifted assets. This means that the donor will need to be comfortable that he or she has sufficient income from other sources to meet their ongoing living requirements or where they do not, that tenancies at full market rents are put in place to ensure that they do not fall foul of these rules.
- However, the impact of the reforms on the Trust still need to be considered particularly with regard to any upcoming 10-year charges and exit charges where the assets of the Trust exceed £1,000,000. As noted above, the impact ofthe policy reforms on Trusts is going to be part of the consultation undertaken early next year.
In summary, the proposed changes will have a significant impact, and whilst it may be difficult to see them in this case, every change generally provides opportunity as well as a detrimental impact. Therefore now is not the time to panic, lose faith or give up. Instead now is the time to take a step back and consider what you want and where you want your business, farm and family to go next.
Nigel Edge is Rural and Agricultural Property Solicitor at Tanners Solicitors LLP, Cirencester and the son of a Staffordshire dairy farmer.
Contact details:
01285 659061