IHT/Farms and business assets: What to expect Wednesday

In light of the Spring Statement on Wednesday, comment from Hilesh Chavda, partner at law firm Spencer West LLP, regarding what to expect in relation to inheritance tax:

“There may be some adjustments to the controversial changes to Agricultural Property Relief. Whether we see anything substantive, or any kind or U-turn remains to be seen but I am not optimistic. Any hopes the less high profiled changes to Business Property Relief or the non-dom changes would be subject to change are going to be dashed I suspect.

Regarding pensions, there is the big question of there being IHT and income tax charges and more practically, how are the valuations going to work. If executors have to wait for pensions providers to give valuations, there are going to be significant delays to the administration process and releasing funds to pay tax and beneficiaries.”

Comment from Hudda Morgan, Private Wealth partner at law firm Spencer West LLP, in terms of what we can expect in the Spring Statement in relation to inheritance tax, farms and their business assets:

“Currently agricultural assets qualify for 100% relief against inheritance tax and business assets 50% or 100% relief, whatever their overall value. The changes proposed in the October Budget mean that as from 6 April 2026 business and agricultural assets will only have a £1m allowance of 100% relief and any excess over that 50% relief, with non listed shares like AIM only ever qualifying for 50% relief.

Inheritance tax allowances for farms and businesses are currently very generous,  but for good public policy reasons –ensuring food security and so that farms and businesses aren’t forced to close with ensuing loss of jobs and tax revenue because assets had to be sold to meet tax when the owner has died. These tax advantages have however had unintended consequences. Investors have bought farms, not to run per se, but as assets to pass on tax free on their death, after which they will immediately be sold, broken up, or the land used for different purposes.  Likewise a whole raft of investments have been developed as investments like any other, but where the underlying assets are the shares of BPR qualifying companies. This takes advantage of the inheritance tax relief, but could be argued isn’t really in the original spirit of what was intended when the reliefs were introduced.

Now farmers and business owners would still have these amended reliefs plus the other inheritance tax allowances, available to us all. Those, combined with the proposed ability to pay off the tax on farms and business assets over 10 years interest free, good succession planning and appropriate life insurance can all mitigate against the changes, but they can come with disadvantages. The next generation may not be ready to take on the considerable challenges of running  a farm/business, life insurance becomes much more expensive the older a person is, deferred taxes still have to ultimately be paid,  etc etc….  We’ve all seen the vocal opposition to the changes, particularly from the farming sector.

Looking first at business property relief, change could be made to the period over which the monies have to have been invested in business, and post death continue to be invested in business assets, to qualify for inheritance tax relief?  That would protect the continuity of businesses and might deter the otherwise casual investor who is just looking to take advantage of the inheritance tax break.

Irish agricultural relief applies to “working farmers”- and there are some interesting aspects to those rules which could be incorporated here-

• the agricultural assets must comprise at least 80% of what the farmer owns overall
• they must be passing to someone who themselves has an agricultural qualification, and continues to farm the land for six years; or to someone who spends (and continues to spend) more than 50% of their normal working time farming, and this must include the farm in question; or the land is let to someone who similarly qualifies in these ways.

Would incorporating changes along these lines, preserve the public policy reasons for giving farms and business advantageous tax treatment, deal with the casual investor investing in these assets only for the tax advantage, without much loss to the tax revenue the government are hoping to generate?”