Spring Statement – the quiet before the IHT storm

In contrast to last October’s Budget and the transformative changes made to Inheritance Tax (IHT), this week's Spring Statement was, as predicted, much quieter in terms of new proposals and policy announcements. Many of the changes to IHT announced last year don’t start for at least a year and in this article, we’ll look at why Business Property Relief (BPR) necessitates careful and proactive planning, while offering some important considerations. 

The Autumn Budget: A Recap

Rachel Reeves’ Autumn Budget last year brought several critical updates to IHT that will significantly impact UK estates. The IHT nil rate band remains fixed at £325,000 now until 2030 – a level which was first introduced in 2009. This decision comes against the backdrop of rising asset values which this year is leading to IHT receipts again being on target for record levels.

These static thresholds mean more estates are liable to pay IHT, but the announcement that unspent pension funds will be included in the calculation from April 2027 are likely to have an even bigger impact on volumes. Previously exempt, these funds will now be part of an individual's estate and subject to a 40% tax rate. This change is expected to impact thousands of families, increasing their tax liabilities and potentially adding 10,000 additional IHT estates across the UK.

APR and BPR

The proposal announced by the new Chancellor back in October which undoubtedly sparked most of the debate relates to the reform of Agricultural Property Relief (APR). From April 6, 2026, the full 100% relief will be limited to the first £1 million of combined agricultural and business property, with values above this threshold receiving 50% relief. There continues to a be a significant amount of anger within the agricultural community about these proposals, and despite the Office of Budget Responsibility (OBR) predicting relatively low numbers of estates (130) affected, farmers will continue to dispute this and express their dissatisfaction.

Changes to BPR is an area which the OBR expect a more significant impact on more estates. In a similar way to APR, the 100% relief available for BPR will be capped at £1 million of combined assets and any value above this threshold will receive 50% relief. Additionally, AIM-listed shares, which previously qualified for 100% BPR, will only qualify for 50% relief, regardless of their value. 

The importance of reviewing your will

In light of the changes to inheritance tax and APR and BPR, it's more crucial than ever to review and update your will. 

Unlike the general nil rate band, the £1 million allowance does not transfer between spouses. If one spouse dies, the allowance is lost unless specific planning is done to preserve the allowance on the first death in a will.  

There is a significant opportunity to structure allowances, reliefs and exemptions to pass on farms and businesses as tax efficiently as possible. Existing wills should be reviewed to ensure that the benefit of the lifetime allowance is not lost. This approach ensures that the business or farm can be passed on with minimal tax impact, safeguarding the future of your family business.

In addition to maximising tax reliefs as explained above, an anomaly in the Finance Bill also impacts the availability of exemptions between spouses. This affects non-UK Long-Term Resident (LTR) spouses and civil partners who inherit from their LTR spouse. If a non-UK LTR spouse makes a death election to be treated as an LTR to secure full spouse exemption, they retain their LTR status for the rest of their life meaning that their worldwide estate remains subject to UK IHT even if they lose their LTR status. Conversely, if they make a lifetime election, they lose their LTR status after 10 years of non-residence. Advice should be taken to understand the impact of this on death and to consider planning that can be done.

Estate planning opportunities 

The restriction to BPR from 6 April 2026 means that estate planning will be more relevant than ever for business owners. While transitional rules apply from 30 October, there are still planning opportunities before 6 April 2026. Here are some key strategies:

• Settle BPR qualifying assets: Opportunity to settle BPR qualifying assets before 6 April 2026 without triggering a lifetime charge to IHT when outright gifting is not appropriate. Post 6 April, business owners will be limited to settling shares up to £1m without triggering a tax charge.
• Anti-Fragmentation rule: A single £1m allowance applies to all transfers into trust made by the same settlor after 30 October 2024. Each trust established will get a fixed allocation of the allowance which will last for the duration of the trust and does not reset. Planning opportunity to use the BPR allowance to direct business assets into trust on a decennial basis and make outright gifts as PETs.
• Restructure trusts: Exits from trusts established in the transitional period 30/10/2024 – 06/04/2026 will not reduce the £1m allowance available at the next 10-year anniversary if made before 6 April 2026. Any exits after this date will reduce the allowance available. Possible planning opportunity to restructure recently established trusts before exit charges come into effect.
• Death-bed planning: Should be reviewed if it is likely a business owner/shareholder will die before 6 April 2026. The stakes are higher in this instance, and whereas previous planning might have involved passing to spouse/on trust with no IHT and CGT-free tax uplift, this should be reconsidered.
• Review Availability of Relief: For higher value companies (i.e., value over £1m), planning should be done – important to review availability of relief and consider whether the business is likely to be sold and quickly converted into cash or if it will continue.

Proactive Steps 

The impending changes to BPR, necessitate careful and proactive planning. By seeking professional advice and implementing effective strategies, families can ensure that their estates are managed in a way that minimises the impact of inheritance tax. Planning ahead is not just a financial necessity but a way to secure the future of your beneficiaries and the legacy you leave behind.

How we can help

Irwin Mitchell has extensive expertise in inheritance tax planning and can provide tailored advice to both businesses and individuals. 

For business wealth enquiries, contact Helen Clarke or Tom Wainman. 

For rural businesses requiring advice in relation to changes to APR, please contact Kat Wainman or Naomi Neville.