The increase of the Agricultural Property Relief (APR) and Business Property Relief (BPR) cap to £2.5 million has been welcomed by many, although advisers say it does not remove all Inheritance Tax concerns.
Lee Blunden, Director at Clemence Hoar Cummings (CHC), says that while the cap increase is positive, the timing is unfortunate and has created complications for families who acted early.
“Some clients were concerned about the original £1 million limit and had already started putting plans in place for something that has now been amended,” he says.
“We would have hoped the Government had reached this position in the original Budget. However, even with the higher cap, it does not provide full protection from Inheritance Tax for larger businesses and so careful planning is still very much necessary.”
The businesses that benefit most are those with substantial qualifying assets.
“Larger family farms, trading companies and capital-intensive owner-managed businesses are likely to gain the most from this change,” he explains.
“These are often businesses where value is tied up in land or trading assets rather than cash. A lot of smaller operations were already comfortably within the previous thresholds, so the impact there is more limited.”
Taken together with transferability between spouses and civil partners, the changes do offer some support for succession planning.
“For married couples and civil partners, the potential to shelter up to £5 million of qualifying assets provides more breathing space,” Lee says.
“It supports the transfer of businesses between generations without forcing asset sales purely to fund a tax bill.”
However, Lee reiterates that the relief is not unlimited.
“When nil rate bands are factored in, a farming couple may only be able to protect the first £6 million of assets,” he says. “That still leaves larger farming operations and high-value businesses exposed to Inheritance Tax bills.”
Families who planned around the original £1 million cap should not assume that work has been wasted.
“Much of that planning will still be relevant,” Lee says. “Inheritance Tax planning covers the whole estate, not just APR and BPR.
“That said, gifting strategies, shareholder or partnership agreements and Wills may need to be revisited because the figures will likely need to be reworked and potentially adjusted.”
Following the number of policy adjustments already announced, Lee advises caution.
“Given the number of changes to APR and BPR, it seems prudent to be prepared for further changes. There is still a lot of pressure on the Government in relation to these measures,” he says.
“Plans should be built with enough flexibility to cope with future adjustments rather than relying on fixed assumptions.”
Looking ahead to the new tax year, his message to farmers and business owners is not to let the increase distract them.
“Do not let headlines create a false sense of security,” he says. “The changes are positive, yes, but they do not remove the need for careful succession planning.
“There is still time to review structures, involve the next generation and put plans in place that protect both the business and the family in the long term before the cap is enforced.
“Our team are happy to provide support with your succession and Inheritance Tax planning needs, so get in touch with us should you need assistance.”