Budget 2024 – Inheritance tax reliefs removed!

Budget 2024 – Inheritance tax reliefs removed!

Changes to inheritance tax has seen the Chancellor confirming reforms to business and agricultural property relief with a reduced 20% Inheritance tax (IHT) rate.

The new rules which are due to come into effect from 6 April 2026 will significantly change the current regime with the chancellor looking to raise an estimated £1.6bn.

Although there will still be some reliefs on the first £1m of a qualifying property, the farming community has slated the decision, claiming it threatens food stability.

The new changes mean that the first £1m for business property and agricultural property relief will be exempt from inheritance tax, covering combined assets, with 50% relief thereafter.

The reliefs kick in after the standard inheritance tax allowance of £325,000 per individual, £650,000 per couple and the additional nil-rate band for property bringing the total tax-free allowance to £1m. Effectively this would give farmers an inheritance tax cushion of £2m, and if the total value of the qualifying property to which 100% relief applies is more than £1m, the allowance will be applied proportionately.

Effectively this means the allowance will cover £1m of property qualifying for business property relief, or a combined £400,000 of agricultural property relief and £600,000 business property relief qualifying for 100% relief.

Assets automatically receiving 50% relief will not use up the allowance and any unused allowance will not be transferable between spouses and civil partners.

While the inheritance tax changes will capture wealthy high profile farm owners, there are huge concerns about the impact on multi-generational farms which have been handed down over decades to the family. These farms are the least likely to be able to afford an inheritance tax bill in the event of the death of a family farm owner.

The NFU president said: ‘This Budget not only threatens family farms but will also make producing food more expensive. This means more cost for farmers who simply cannot absorb it, and it will have to be borne by someone…..’.

Until now, these reliefs meant that businesses and farms could often be passed down a generation without any IHT. However, they protect the UK’s numerous business owners and farmers from having to sell up to pay for the tax.

The government has said ‘almost three-quarters of estates claiming agricultural property relief and the majority of estates claiming business property relief in 2026 to 2027 are expected to be unaffected by these reforms.’

The tax changes are expected to affect around 2,000 estates each year from 2026 to 2027, with around 500 farms claiming agricultural property relief and around 1,000 holding affected shares.