Introduction of caps on Agricultural Property Relief (APR) and Business Property Relief (BPR)

The upcoming introduction of caps on Agricultural Property Relief (APR) and Business Property Relief (BPR) in April 2026 is likely to generate significant tax planning activity, particularly around the gifting of agricultural and business assets. Given the significant impact these reliefs currently have on reducing inheritance tax (IHT) liabilities, the changes will prompt individuals and families to consider gifting these assets before the new caps come into effect.

Here’s why we might foresee a substantial increase in gifting:

Current Advantage of APR and BPR

1. Under the current system, APR and BPR allow for significant IHT relief (up to 100%) on qualifying agricultural and business assets. These reliefs have been a crucial part of estate planning, especially for those with significant business or farming interests.
2. By capping these reliefs, the government will limit the extent to which individuals can shelter large agricultural or business estates from IHT, potentially leading to substantial tax liabilities.

Strategic Gifting to Maximise Current Reliefs

1. To lock in the full benefits of the current APR and BPR, many asset owners may choose to transfer or gift agricultural and business assets before the April 2026 cap is implemented. This could lead to a surge in activity, as individuals aim to utilise the uncapped reliefs while they are still available.
2. Gifting these assets now allows individuals to reduce the size of their taxable estates and potentially minimize future IHT exposure, especially if the assets would lose a portion of their IHT protection under the capped regime.

Interaction with the Potentially Exempt Transfer (PET) Regime

1. The PET regime, which allows gifts to be free from IHT if the donor survives for seven years after making the gift, remains unchanged. This provides a continued incentive for individuals to consider gifts as a way to minimise future tax exposure.
2. By gifting before April 2026, asset owners can combine the uncapped APR and BPR benefits with the PET regime. If they survive the required seven years, these assets could be removed entirely from their estate for IHT purposes.

Considerations for Gifting Agricultural and Business Assets

1. Business Succession Planning: Gifting business assets can be complicated, especially if multiple family members or partners are involved. Careful planning is needed to ensure the transfer does not disrupt the business or farm operations.
2. Control and Management: Many asset owners may be reluctant to give up control of their businesses or farms. Solutions like trusts or family partnerships could be explored to facilitate gifting while retaining some influence.
3. Capital Gains Tax (CGT) Implications: Transferring assets can trigger CGT, depending on the nature of the asset and the reliefs available. Business and agricultural asset owners will need to weigh the potential CGT costs against the IHT savings.

Potential Planning Strategies

1. Gifting to Family Members: Transferring assets to younger generations before the relief cap can provide substantial long-term tax benefits, especially if combined with PET advantages.
2. Use of Trusts: Trusts can be a useful vehicle for estate planning, allowing for more control over asset distribution while still taking advantage of the current APR and BPR.
3. Phased Transfers: For large estates, phased gifting over several years could be a strategy to spread out CGT liabilities and gradually reduce the size of the taxable estate.

Possible Increase in Demand for Professional Advice

1. With these significant changes on the horizon, we are likely to see a rise in demand for tax and estate planning advice. Financial advisers, tax specialists, and estate planners will be instrumental in helping clients navigate the complexities of these new rules and develop strategies to minimise their tax exposure.

Given the looming cap on APR and BPR, it is highly probable that there will be a marked increase in the gifting of agricultural and business assets before April 2026. Asset owners will seek to maximise the existing uncapped reliefs and utilise the PET regime to protect their wealth from IHT. However, careful planning is essential to manage the potential pitfalls, such as CGT implications, business continuity issues, and the need to balance control and tax efficiency.