With effect from 6 April 2026, there will be a lifetime allowance for IHT reliefs, which restricts Agricultural Property Relief (APR) and Business Property Relief (BPR) to a total claim of £1m at 100%. The remainder of the value covered by APR and/or BPR will be restricted to a rate of 50%. This change is applied from 6 April 2026, and so deaths before this date will still continue to receive APR and BPR in the current manner.

As a result, estates which previously would have qualified for IHT relief in full are now likely to be subject to IHT, albeit with some relief applied. Where there is a payment of IHT arising from the application of only 50% APR or BPR, the payment can be spread over ten yearly instalments, which under current rules will not attract interest in most cases. For deaths on or after 6 April 2026, the first instalment will be due six months after the end of the month in which the person died. Payments are then due every year on that date for the duration of the ten-year period. If the property is sold before the end of the ten-year period, the instalment option ends and all outstanding IHT is due. The application of the relief results in an effective rate of tax on APR/BPR qualifying assets of 0% on the first £1m, and 20% thereafter.

In the wake of the changes, many farmers are considering their options and exploring the possibility of making lifetime gifts in order to reduce their potential exposure to IHT. Unfortunately, there are a number of tax traps for the unwary, and therefore taxpayers need to be very careful before making any decisions.

Whilst individuals may think a simple solution is to sell their assets to other family members for undervalue (i.e., say £1), unfortunately HMRC already have anti-avoidance rules to counter this. Where a transaction between connected parties takes place, the disposal is treated as not being made as a bargain at arm's length and therefore the disposal value is deemed to be equal to the market value at the date of disposal as opposed to the consideration received (known as the market rule).

S286(2) TCGA 1992 states that a person is connected with an individual if that person is:

• The individual’s spouse or civil partner
• A relative of the individual
• The spouse or civil partner of a relative of the individual
• A relative of the individual’s spouse or civil partner
• The spouse or civil partner of a relative of the individual’s spouse or civil partner

Relative means a brother, sister, ancestor, or lineal descendant. However, it doesn’t cover nephews, nieces, uncles, or aunts.

It is also possible to be connected to companies controlled by the donor alone or together with their connected parties, as well as any trust set up by the donor or their connected parties.

Therefore, if you were to gift assets to your children, this could trigger a CGT charge, despite the fact that no money changes hands. Additionally, there could be a stamp duty land tax (“SDLT”) charge if there is a mortgage on the property, as the assumption of debt is chargeable consideration for the purposes of SDLT. From an IHT perspective, the gift would be treated as a potentially exempt transfer and would only fall outside your death estate, provided you survive seven years from the date of gift.

Should the asset being gifted qualify for APR or BPR for IHT purposes, then normally the gain can be held over, such that CGT is only payable when it is sold by the donee.

There are also anti-avoidance rules in place to prevent a donor from giving away an asset but continuing to derive some element of benefit from that asset. For example, should you decide to gift the farmhouse or a piece of land to children but still wish to live in the property or rent the land at a non-commercial rate, this would invoke the gift with reservation rules. In this instance, the anti-avoidance rules would bite and treat the asset as still forming part of your estate at the date of your death (i.e., the rules would pretend that you still own the asset) and therefore remain within the scope of UK IHT.

Partners need to be particularly careful when gifting a share of capital in the partnership to ensure they are not caught by these rules. It might be advisable for the donor to receive a first profit share from the partnership to ensure that the gift is not caught by these anti-avoidance rules.

Great care is also needed if the asset is passed into a controlled company at undervalue. To the extent that connected parties benefit from the transfer, there will be a “deemed disposal” for IHT purposes – so if you gifted an asset to a company jointly owned by you and your children, the consequential increase in the value of their shares would be a deemed chargeable transfer by you. Such a disposal is NOT treated as potentially exempt and therefore if it exceeds the £325,000 nil rate band, IHT will be payable immediately. Additionally, IHT may be due should the donor die within seven years of the gift.

HMRC have recently published an update in respect of their open consultation surrounding the reforms to both APR and BPR in respect of trusts. This appears to confirm that the £1m APR/BPR allowance for trusts will refresh every seven years on a rolling basis. This means that after 6 April 2026, assuming you have no other settled trusts, you would be able to settle £1.65m of 100% APR/BPR assets into trusts in year one without triggering an IHT charge (i.e., as the first £1m would be covered by the APR/BPR £1m 100% allowance, the remaining £650K would benefit from 50% APR/BPR relief and the final £325,000 would be covered by your nil rate band). After seven years, both of the allowances refresh and you could then settle a further £1.65m of 100% APR/BPR assets into trust.

As you will note from the above, due to the number of complexities involved with the transfer of agricultural assets, it is imperative that thorough professional legal and tax advice is sought before proceeding with any planning. Furthermore, all advisors need to be on the same page to ensure that no unexpected tax charges are crystallised, and it is wise to involve all advisors from the start, including the accountant, lawyer, land agents, and lender.

^{*the views expressed are the author's and not ICAEW's}