Autumn Budget 2024 – Impact of APR and BPR relief changes on agricultural businesses

On 31 October 2024, the government announced its Autumn Budget, which introduced major changes to inheritance tax (IHT) rules which could impact on succession plans for farming businesses. In this article, we explain the planned changes and what farming businesses can do to mitigate the impact.

APR and BPR: the basics

One of the Budget's most important and well publicised announcements for agricultural businesses is the change to the way in which two IHT reliefs work. Those reliefs are known as Agricultural Property Relief (APR) and Business Property Relief (BPR).

IHT is paid on the estate of someone who has died. The starting position is that no IHT is paid on the first £325,000 of the value of the estate (known as the 'nil rate band') but IHT is paid thereafter at a rate of 40% on the remainder of the value of the estate. IHT calculations are often complicated as a wide variety of reliefs and exemptions – including APR and BPR – can apply which can reduce the amount of IHT due.

APR and BPR have become very important reliefs for farming businesses, as in many cases they enable the farm to be passed from one generation to another tax-free on death. Until April 2026, APR and BPR work as follows:

• APR can be claimed for qualifying agricultural property forming part of the estate. For land which was owned and farmed by the deceased before they died, APR can usually be claimed at a rate of 100%, in which case no IHT is due in respect of this property.
  
  
• BPR can be claimed for relevant business property forming part of the estate. Depending on how that property is owned and used, BPR can either be claimed at a rate of 100%, meaning that no IHT is due in respect of this property, or at a rate of 50%, meaning that IHT is due at an effective rate of 20% (rather than the standard rate of 40%) in respect of this property. For farming businesses, BPR is often used in addition to APR, as BPR can be applied against parts of the farm which have been taken out of agricultural use and are being used for diversified business purposes.  
  
  
• There is currently no cap on the value of assets which can qualify for APR and BPR.

Given that APR and BPR have operated in this way for a number of years, many farming succession plans have been based around the assumption that these reliefs will continue to be available in this way and therefore there will be little (if any) IHT to pay when the farm is passed down to the next generation. This can mean that the older generation of partners in a farming partnership retain the ownership of the farm until they die. A common plan is for the farm to then be passed under their wills to the next generation. Until now, for many farms that has been a sensible, tax-efficient decision to take, but recent changes introduced by the Budget will significantly impact this.  

APR and BPR: recent reforms announced in the Budget

Changes announced in the Budget mean that from April 2026, APR and BPR will only be available at 100% for qualifying assets within the deceased's estate worth a combined value of £1,000,000. Any qualifying agricultural property or relevant business property over this value will only benefit from APR and/or BPR at a rate of 50%.

The effect of this change is that if a landowning farmer dies during or after April 2026, unless any other reliefs or exemptions are available, no IHT will be due on the first £1,000,000 of the value of the farm, but IHT will be due at an effective rate of 20% on the remaining value of the farm.

In 2023, the average size of a farm in England was approximately 217 acres, and the average price of arable land was around £11,300/acre, meaning that the average farm is worth in the region of £2,450,000.

Whilst the government has confirmed that IHT from April 2026 can be paid in interest-free instalments over a 10-year period, the changes to the APR and BPR reliefs could nonetheless mean that farming businesses either have to allocate a large portion of their profits each year to pay IHT instalments or sell part of the farm in order to raise enough capital to pay the IHT due. This upcoming change to the APR and BPR reliefs could therefore have a significant impact on farming businesses, as either of those options could undermine the sustainability of the farming business as a viable commercial enterprise.

These changes have raised huge concerns over the sustainability of family farming businesses,. However, with the right succession plans in place, many farming businesses should be able to mitigate at least some of the consequences of these changes. It has therefore never been more important for farming businesses to seek comprehensive legal, accounting and tax advice to ensure that they have the right succession plans in place for their business to adapt to these changes and ensure the longevity of their farms for the next generation and beyond.

How can we help?

Specialists in our Private Wealth sector have a deep knowledge of the agricultural sector and work closely alongside other professional advisers (such as accountants and land agents) to ensure that our farming clients are able to create and implement succession plans which ensure the continuity of their businesses for generations to come.

We appreciate that the recently announced changes to the IHT regime can be both confusing and daunting, but the key point to note is that these changes do not come into force until April 2026 and therefore there is time for you to seek advice on how you can mitigate the impact of these changes.

Our advice for farmers across England and Wales is:

• Don't panic. For the moment, no immediate decisions need to be made.  There is more detail to come in early 2025 from the government.  Wait for that before making final decisions, especially because of the extensive campaign under way to get the government to reconsider.
  
  
• With that further detail from government there will still be time to take advice and change your succession plans to mitigate the impact of these changes but it is important to understand that the advice you will need is bespoke and what may work for one may not work for another.
   
  
• Take early advice. Whilst there is still time to implement changes to your succession plans, this process will inevitably take some time, and in most cases will take a number of months to work through. It is therefore important that you seek advice at the earliest possible opportunity so that any necessary alterations to your succession plans can be implemented before the IHT changes take effect. Whilst the changes do not come into effect until 6^th April 2026, there is another planned budget in November 2025 which could bring further changes particularly to the rates of tax.
  
  
• Consider your options in the wider context of what is right for your business. For example, one option to mitigate any potential IHT liability might be to make a lifetime gift to your family members – but that decision has to be right for you and the business more generally. Bear in mind that tax may be just one important factor amongst many.
  
  
• Communicate your plans with family members. Once you have taken advice and reconsidered your succession plans, it is extremely important that these plans are communicated to your family members to ensure that there is no confusion or misunderstanding when you die. Sadly, all too often we see disputes arising from a failure to communicate succession plans clearly and at an early stage, with problems simply stored up for the next generation to deal with – often at enormous financial and personal cost.
  
  
• Regardless of what the government does in terms of reconsidering their IHT reforms, review your succession plans regularly. The IHT changes announced in the Budget demonstrate that various external factors – from political decisions to changing family dynamics – can have a major impact on our carefully laid succession plans. That highlights the importance of keeping your succession plans under regular review to ensure that they properly reflect how you intend your farm to be passed down to the next generation.

If you would like any succession planning advice from our specialist lawyers, please do not hesitate to get in touch for an initial consultation.  

Listen to the latest episode of our Experts in the Field podcast about this topic.