The application of inheritance tax to businesses and farms was announced in the Autumn 2024 Budget to an outcry especially from the farming community who argued it would have a significant negative consequences on around 70,000 small working farms.
In the 2025 Budget, the government partially amended its original proposals and announced that the £1 million allowance would become transferable between spouses and civil partners which is in line with the other main IHT allowances – the nil-rate band (currently £325,000 per individual) and the residence nil-rate band of a further £175,000 in some cases.
Then in a surprise move on 23 December 2025, the government announced the allowance would increase from £1 million to £2.5 million per estate.
They also reduced their estimate of how much the new policy will raise from £520m to £300m by 2029/30 which still begs the question of why bother for such a relatively paltry sum compared to the budget deficit of £138 bn.
That said – this is welcome news for many small business owners and the farming community as a whole.
Key facts:
The challenge remains
Despite the increase in allowances the underlying changes to BPR and APR still stand and any value above the allowance will still be subject to an effective tax rate of 20%.
This can cause significant liquidity issues even though the tax can be paid in instalments.
It is therefore essential that before the new rules come into effect on 6 April 2026, those who are affected review their own succession plans particularly in situations where there is a next generation of ownership planned and a need to think ahead about how to fund the potential additional tax cost.
Things to consider
There are numerous consideration not least tax as gifting company shares is not straightforward as a gift is a disposal for capital gains tax purposes albeit in most cases gains can be held over and tax deferred to a future sale.
It is also important to consider the impact of these changes on Will planning and Trust structures so these topics are firmly on our annual review agendas where relevant.
Finally any gifting must be affordable so an assessment of your overall IHT exposure, asset position and income security should be undertaken before any action is considered.
Any planning needs just that – planning – which is the fundamental role of a financial planner.
We have supported a number of clients to tackle these challenges over the last 18 months and can help co-ordinate the specialist tax and legal advice needed to make effective plans so do contact us if this is an area you would like to understand further and explore.
This article is for informational purposes only and does not constitute financial advice.
Sources: H M Treasury and GOV.UK | Office for Budget Responsibility | National Farmers Union