The Chancellor has raised the Agricultural and Business Property allowance from £1M to £2.5M, meaning that a married couple will have a combined allowance of £5M when the rules are introduced in April 2026. A very welcome Christmas present for many farmers and business owners!

What does this mean?

This means that a married couple will be able to pass on up to £5M in qualifying assets to their heirs without suffering inheritance tax. An effective inheritance tax rate of 20% will apply to qualifying assets over that threshold (or 3% for trusts) being half the normal rate. This compares with the current position where there is currently no cap on the amount of APR/ BPR relief that can be claimed (although beware of the ‘transitional rules’ which apply from 30 October 2024). As was confirmed in the recent Autumn Budget, the allowance will be transferrable between spouses which will give greater flexibility.

Some farmers and business owners have already taken actions, whilst others have either made preliminary plans, not yet enacted, or have hoped the problem would go away. What should they do now?

What should you do now?

At the moment, only the headline position has been announced, with more detail to follow in January’s Finance Bill but, based on what we know so far, our thoughts are:

• If you have already carried out your tax planning and made gifts based on the very reasonable expectation that the allowance would be £1M, then those gifts can’t be undone. If your combined APR/BPR qualifying assets were worth over £5M (or £2.5M if not married) then in most cases there will still be a significant benefit from having done this. However, even for those within that threshold, there may still be some benefit in the fact that the value you have given away is effectively frozen at the time of the gift because any uplift in value afterwards automatically falls outside your estate. For example, if you gifted land which subsequently receives planning permission, that increase in value should remain outside your estate even if you were to die within seven years.
• If you haven’t started making plans yet, we would recommend that you consider the value of your qualifying assets and assess whether you are likely to be affected. If you think you will be impacted, or if you’re not sure, speak to your tax adviser as soon as possible as there may be a benefit to carrying out the planning before 5 April 2026.
• If you are midway through making plans, those plans should be reviewed and adjusted as necessary. In some cases, it may be beneficial to carry out the planning (albeit that a few tweaks may be needed), whilst in others it may make sense to pause the planning.

Why has this been announced now, so close to the April deadline?

The announcement caught us all by surprise. It arrived only a month after the Autumn Statement and after 14 months of lobbying and protests by farmers and business owners. But until now Rachel Reeves had stood resolutely by her plans and showed no sign of changing them.

Perhaps she has finally listened to the concerns of businesses and farmers? Or perhaps this was a pre-meditated announcement made on a ‘quiet news day’ when a lot of media companies have already adjourned for Christmas…

Whatever the cause, it is very welcome news and we would advise that you speak with one of our tax experts as soon as possible if you think you may be affected.

Wishing you all a very merry Christmas, from all of us here at Rickard Luckin!