APR and BPR Update

Following the draft legislation published by HM Treasury last week it is disappointing to note that the government has only made minor concessions on the Agricultural Property Relief (APR) and Business Property Relief (BPR) changes.  

As we all now know the policy will give everyone a £1 million cap on the IHT relief at 100 % on business and agricultural property.  

Any value above the cap will only receive 50% relief (so will be taxed at a rate of 20 %).  

A significant lobbying effort has been mounted by professional bodies in an effort to reduce its financial impact on family-owned businesses and farms. 

However, the now released draft legislation contains no substantive changes to the original proposal.  

The £1 million cap remains unchanged, although a mechanism has been added whereby it could be increased in line with the consumer price index (CPI) after the 2029/30 tax year, if the prevailing government agrees. 

A serious amount of the lobbying was aimed at persuading the government to make the £1 million cap transferable between spouses or civil partners, but we now know this is definitely not going to happen, which is a serious blow.  Therefore, married couples and those in civil partnerships will need to consider their estate planning carefully and there is still opportunity to act before next April if considering the use of trusts.  

There was also confirmation of a further concession which allows the IHT due in respect of APR/BPR property to be paid in 10 interest-free annual instalments.  

However, even with this concession, the executors of many business owners will face increased tax due to charges that will arise on extracting of funds from the business to pay the IHT liability – whether this be through share buybacks subject to capital gains tax (CGT) or dividends subject to income tax. Effectively these estates will pay tax in order to pay tax, which seems grossly unfair and will put huge pressure on family owned businesses whether large or small.   

Please do contact us with any questions you may have around how changes to APR and BPR could affect your circumstances.