Background

At the Autumn Budget 2024, the government announced its intention to reform APR and BPR with effect from 6 April 2026. This includes restricting APR/BPR on assets that qualify for 100% relief to £1m. Assets exceeding £1m would attract APR/BPR at 50%. Read the Tax Faculty’s February 2025 article on the government’s consultation to learn more about the proposals generally and their application to trusts.

ICAEW’s response 

In ICAEW REP 30/25, ICAEW expresses its support for the government’s approach to secure economic growth based on long-term policy certainty and an environment conducive to investment. However, ICAEW believes that the proposals outlined in the consultation are at odds with this approach and will result in the demise of previously viable multi-generational businesses and have an adverse impact on economic growth in many communities. 

In particular, ICAEW believes that:

• the proposals are too wide in scope; 
• to meet the policy’s aims, the allowance for APR/BPR at 100% looks to be set too low and it should also be transferrable between spouses; and
• funding the IHT payment will be a significant issue for many farms and businesses, even with the option to pay by 10 annual instalments. 

Scope of the policy

ICAEW is concerned that the policy is not targeted specifically at any category of owner, such as larger landowners who buy land to rent it out and claim APR. Rather, it appears that all business owners and active farmers will be affected. ICAEW encourages the government to look at how other countries have imposed conditions on similar reliefs, and provides a summary of the rules applying in the Republic of Ireland as an example in its response. 

ICAEW believes that the policy unfairly targets the elderly, who are now faced with an IHT charge or making lifetime gifts and hoping they survive another seven years for the gifts to be exempt from IHT. An enhanced taper or a transitional relief for active farmers and business owners over the age of, say, 65 could be introduced to address this issue.

Issues with the allowance

ICAEW believes that the proposed £1m allowance is too low and will affect many more businesses and farms than the policy intends. HMRC’s figures appear to exclude BPR and APR claims made by trustees in relation to 10-year charges or proportionate charges. In addition, many IHT forms containing BPR or APR claims for 100% relief will be based on an estimate and no professional valuation will have been obtained. ICAEW also suggests that the allowance should be increased annually in line with inflation.

ICAEW recommends that the government considers making the allowance transferrable between spouses. The inability to transfer the £1m allowance will mean that wills will need to be redrafted to ensure the allowance is used on the first death. This will lead to greater complexity in ownership structures, including the use of trusts, which are costly to set up and run.

Paying the IHT

It is widely acknowledged that farms are already struggling financially due to various factors, including climate change and the abolition of subsidies. This makes it difficult to fund the IHT payment and calls into question the farm’s viability. 

However, the issue could be even more significant for family businesses that rely on BPR. In this case, there could be additional tax charges if the personal representatives need to extract funds from a company to fund the IHT due on the company’s shares. For example, if the company sells assets to generate funds, it will pay corporation tax at up to 25% on any gains. The remaining funds can then be paid out as a dividend to the estate, subject to income tax at 39.35%. A potential solution may be for the government to consider extending the legislation that applies where a company purchases its own shares to lifetime transfers and trustees. 

Issues for trusts

Professional valuations will become more important. ICAEW has asked the government to clarify how long valuations will be valid for, given that some trusts make frequent distributions, and how the proposed related property rules for trusts will work. ICAEW is concerned about the level of information sharing that may be needed where multiple trusts have been created by the same settlor.

The government proposes that the £1m allowance will be allocated in chronological order to the first trusts established after 30 October 2024. Where a settlor has established multiple trusts, ICAEW has asked the government to clarify how the allowance will be allocated in the future if the earliest trust ceases to hold property that is eligible for BPR or APR.