Budget 2024: Inheritance tax changes and their impact on farmers and business owners

The Autumn 2024 Budget introduces substantial reforms to the Inheritance Tax (IHT), affecting farmers and business owners who previously benefited from extensive relief.

From 6 April 2026, Business Property Relief (BPR) and Agricultural Property Relief (APR) will be capped at £1 million per individual and, broadly speaking, one trust. This cap could place previously exempt estates within IHT liability, underscoring the importance of proactive planning.

Understanding the IHT implications for your business is crucial to preserving assets for future generations and mitigating tax liabilities that could otherwise threaten the enterprise.

Inheritance tax planning strategies for Budget 2024

One effective strategy may be to make earlier lifetime transfers of business or farming interests to family members or to trusts. Timely transfers reduce the assets exposed to IHT.

Transferring assets into a trust offers significant advantages. Business owners and farmers can remove assets from the IHT net indefinitely and defer Capital Gains Tax (CGT) with Holdover Relief. This will be particularly advantageous if the sale of the business or farm isn’t expected anytime soon. Trusts protect assets and enable more flexible long-term planning.

Finally, having a well-structured will is crucial. Regularly reviewing and updating wills optimises relief and allowance claims and aligns them with the family’s specific financial and personal situation. Families with business or farming assets will more than ever be poorly served by simple wills or those made at the last minute, under pressure. Early evaluation of assets, business structure and family needs can mitigate IHT risks and make for much better outcomes, including a clear succession plan.

Key considerations for business owners

For business owners, the 2024 Budget’s introduction of a £1 million cap on Business Property Relief (BPR) highlights the importance of thorough succession planning. By developing a strategy that maximises the BPR limit, business owners can effectively reduce inheritance tax on their business assets, ensuring they make the most of available reliefs.

Proactive succession planning not only safeguards family assets but also supports the preservation of the family’s legacy. Starting this process early helps to minimise the potential Inheritance Tax burden, enabling a smoother transition of business ownership to future generations. Thoughtful preparation is essential to protect both the financial future of the business and the security of family members, allowing for a stronger foundation as they move forward.

Key considerations for farmers

Farmers will often say that they are asset-rich but cash-poor. Even before the Budget, many farms stood on a knife edge, constantly challenged to maintain profitability in the face of constantly changing pressures. The changes to Inheritance Tax (IHT) will present many farmers with an existential challenge, with agricultural land now commanding a value out of all proportion to its profitability, yet which attracts the same liability to IHT as other business assets.

Ensuring the continuity of the farm in the face of this threat will require more than good stewardship, which all successful farmers must now practice. Standing still is no longer an option – now that the longstanding protection from IHT that family farms have depended upon has been swept away. The 2024 Budget’s cap on Agricultural Property Relief (APR) means that careful IHT planning and the best advice are now crucial for protecting farming assets for the future.

A strategy for maximising APR will be key to preserving farming enterprises between generations. Transferring assets to family members or placing them in trusts helps farmers reduce or eliminate substantial Inheritance Tax liabilities. These approaches offer the next generation a chance to sustain farming operations without being saddled with the unaffordable burden of IHT instalments.

By understanding the impact of the changes and formulating an Inheritance Tax strategy, farmers and business owners can protect their assets and effectively manage IHT liabilities. These proactive steps can help ensure the continuity of family businesses, even amid the extraordinary changes of the 2024 Budget.