Following the Autumn 2024 budget changes, a consultation was promised on the impact of the Inheritance Tax (IHT) reforms for Agricultural Property Relief (APR) and Business Property Relief (BPR) in relation to trusts in early 2025.
The consultation was opened on 27th February 2025 and is open until 23rd April 2025. It provides additional details in relation to how the new £1 million allowance is anticipated to operate in relation to trusts and it invites response to nine questions regarding this. In this article, our private client team discuss an initial review of the key points arising from the consultation document.
£1 million allowance for individuals
The £1 million allowance for individuals will refresh every seven years on a rolling basis. This is similar to the way the nil rate band currently operates.
If an individual has qualifying agricultural and business property held in more than one component of their Estate (i.e. both personally held property and property in a life interest trust), then the £1 million allowance will be apportioned across all the qualifying property.
The £1 million allowance will be allocated on a chronological basis starting with the earliest chargeable transfer and any unused allowance is not transferable between spouses and civil partners.
£1 million allowance for trusts – Ten-year anniversaries and exit charges
There will be a combined £1 million allowance for trustees on qualifying agricultural and business property held in relevant trusts. The £1 million allowance for relevant trusts will refresh every ten years and the allowance will also apply to exit charges when qualifying property leaves a trust. If there are multiple exits during a ten-year period, then the relief is applied cumulatively.
Any £1 million allowance which is used against an exit charge will reduce the maximum allowance that is available at the next ten-year anniversary. The consultation also includes a suggestion to standardise the calculation of exit charges before and after the first ten year anniversary as these are currently calculated differently.
Transitional provisions – Transfers made pre-30 October 2024
Qualifying trust property settled prior to 30th October 2024 will be brought into the new regime on the trust’s next ten-year anniversary which falls on or after 6th April 2026. Any exits between 6th April 2026 and the trust’s next ten-year anniversary will continue to benefit from 100% relief on qualifying property (i.e. will not be subject to the £1 million allowance). Such exits will not reduce the £1 million allowance available at the next ten year anniversary. When calculating the first ten-year anniversary charge after 6th April 2026, the £1 million allowance will only apply to complete quarters after 6th April 2026.
Transitional provisions – Transfers made between 30th October 2024 and 6th April 2026
The £1 million allowance will not apply to contributions to a trust during the transitional period provided that the settlor lives for seven years after the transfer. If the settlor dies on or after 6th April 2026 but within seven years of making the transfer, then the £1 million allowance will apply to these transfers and reduce the allowance available on any later transfers.
The trust’s £1 million allowance will not apply to any exit charges for qualifying property settled into trust on or after 30th October 2024 that exits the trust before 6th April 2026. Such exits will (according to the consultation document) receive 100% relief and will not reduce the value of the £1 million allowance at the next ten-year anniversary.
For exits after 6th April 2026, the £1 million allowance will apply and the allowance available at the next ten-year anniversary will be reduced accordingly. When calculating the first ten-year anniversary charge after 6th April 2026, the £1 million allowance will only apply to complete quarters after 6th April 2026.
Where multiple trusts are settled after 30th October 2024,there will be a single £1 million allowance for subsequent ten year anniversary charges and exit charges. The allowance will be allocated in chronological order.
Option to pay Inheritance Tax in instalments
From 6th April 2026, there will be the option to pay IHT by equal instalments over ten years interest free, on all property which is eligible for agricultural or business property relief.
What next?
Our private client team will be feeding back on the consultation through our professional bodies and reviewing the impact of the proposals for our clients. In the meantime, any affected individuals and trusts should review any previous IHT planning and consider their updated position following April 2026 and also consider any actions that could be taken prior to April 2026. Get in touch with a member of our specialist team today who will be able to advice you through this process.
