By Chris Moir, associate director and head of personal tax at RMT Accountants & Business Advisors
The start of the new financial year finally brought the longawaited and much-debated changes to the availability of Business Property Relief and Agricultural Property Relief for Inheritance Tax (IHT) purposes into force.
The new rules mean that, as of 6 April 2026, when an individual passes away with assets that qualify for Business Property Relief or Agricultural Property Relief, the rate of relief will only be 100% on the first £2.5m of value attributable to those assets.
For qualifying assets that exceed £2.5m, the rate of relief is reduced to 50% on the excess over and above the £2.5m allowance, which will result in an effective rate of Inheritance Tax of 20%.
For any qualifying assets passing to a surviving spouse or civil partner, any unused allowance will also transfer to that individual, meaning that a joint estate can benefit from up to £5m of relief.
The focus for much of the debate around these changes has been the specific impact they are likely to have on the farming community, but what has perhaps been a little lost has been that this isn’t the only business sector in the spotlight.
In fact, the owners of any trading business are just as likely to be affected by the new rules as those in the agricultural sector, and now that it is clear that there is likely to be a long-term financial impact for those that don’t plan properly in response to them, all business owners need to be reviewing their circumstances
Part of this will be succession planning, which as ever comes with its own complications whether you are a family-run business or not.
Potential successors in a family business may not yet be ready to take on more senior roles, or indeed may have no interest in running the business at all.
Where a feasible succession plan cannot be put in place, the potential sale of the business maybe a more likely outcome than passing it on.
We have been having conversations with clients about potentially bringing business sales forward, or how the passing on of business assets may impact beneficiaries in the longer term from a capital gains tax perspective, where a gain may be ‘rolled over’ to a beneficiary.
Where a business owner intends to retain their interest and pass this on via their wills, the business’ future liquidity becomes paramount where other assets in the individual’s estate are insufficient to settle any IHT due.
Business owners should be taking steps in advance to ensure that any IHT can be funded, and we are helping our clients evaluate what those potential liabilities may look like.
As part of the process, it makes sense to review any existing wills and any relevant shareholders agreement or partnership agreements that are in place, to ensure that these are up-to-date and are aligned with the recent legislative changes.
If there is any IHT to pay on business or agricultural assets, an election can be made by executors to settle the tax in instalments over a ten-year period. HMRC have confirmed that no interest will be charged on such arrangements.
Taking informed, professional advice is an essential first step for business owners and their families, so that they fully understand what their personal IHT position now looks like.
In addition, from 6 April 2027, new rules are due to come into force that will mean uunspent private pension pots and some death benefits will be enveloped within an individual’s total estate value for IHT purposes. These changes also need reviewing by a qualified advisor and as part of the planning process.
By ensuring you’re fully aware of the evolving situation in the round, you can start to prepare a suitable plan for your and your family’s future.
To discuss your personal Inheritance Tax situation, please contact Chris Moir at RMT Accountants & Business Advisors on 0191 256 9500 or via advice@r-m-t.co.uk
