Keir Starmer has announced a very welcome change to the proposals affecting the inheritance tax treatment of "family farms" and family business owners. In Rachel Reeves first budget the government announced that the valuable "agricultural property relief" (APR) and "business property relief" (BPR) (which wholly exempt certain assets from inheritance tax) would be drastically cut back. Under the proposals as originally announced, an individual can claim a maximum relief of £1,000,000 against their qualifying assets. Inheritance tax at 50% of the normal tax rate would then apply to the value of the APR or BPR assets.
While an exemption of £1,000,000 might seem to be a high exemption to some, the difficulty with the original legislation was that it does not account for the fact that the capital land value, particularly agricultural land, may be much greater than the income yield the land can produce. The exemption was not, as originally announced, transferable between spouses, so that for many farmers the maximum value of the farm they could pass on would be £1,000,000, potentially forcing farmers to sell land, or break up the farm, to pay the tax.
In Rachel Reeves’ 2025 Budget the Government announced that the exemption will now be transferable between spouses, and Kier Starmer has personally intervened to increase the exemption cap from £1,000,000 to £2,500,000. The consequence of these announcements is that many family farmers will now be able to pass on £5,000,000 of the value of their farms to their families.
This may help many smaller farms to continue being held and used as farmland, and will be a very welcome Christmas gift for farming communities.
If you have any questions on the application of APR or BPR, please contact Catherine Pugsley or Anna Gaston.