Inheritance Tax (IHT) has always been a complex area of estate planning, and the government’s new approach to Agricultural Property Relief (APR) and Business Property Relief (BPR) is adding another layer of complication. Following the Autumn Budget 2024, the Chancellor confirmed that, from 6 April 2026, the current unlimited 100% relief for qualifying agricultural and business assets will be capped. From that date, only the first £1 million of qualifying assets will attract 100% relief, while the remainder will receive 50% relief.

Although the cap itself does not apply until 2026, transitional and anti-forestalling rules mean that gifts and transfers made before the implementation date may still be affected by the new regime. The timing of gifts, the date of death, and the type of ownership or trust structure all play a role in determining how much relief applies. Understanding these transitional rules now is vital for anyone considering gifts or succession planning before the new system takes effect.

How the Transitional Rules Affect Individuals

For individuals who own qualifying business or agricultural property, the relief available depends on both the date the gift is made and the timing of the donor’s death. The rules create several distinct scenarios that determine whether full or partial relief will apply.

If an individual dies on or before 5 April 2026, their estate and any chargeable gifts will be assessed under the current system, where there is no limit on the value of assets qualifying for 100% APR or BPR. This provides a short-term period of certainty for those estates.

Where a gift was made before 30 October 2024 (the date of the Budget announcement) and the donor dies after 5 April 2026, that gift will still benefit from full relief under the old rules. It will not count towards the new £1 million cap. This effectively rewards early planning before the Budget changes were announced.

However, gifts made between 30 October 2024 and 5 April 2026 fall into a more complex transitional window. If the donor survives for seven years after making the gift, full relief will apply, but if they die within seven years, the gift is reassessed under the new capped system. This could significantly reduce the relief available – only the first £1 million would qualify for 100% relief, and the balance would receive 50%.

To illustrate, imagine a business owner gifts £5 million of qualifying shares to family members on 1 November 2025. If that individual passes away in 2028 (after the new rules begin but within seven years), only £1 million of those shares will qualify for full relief, while £4 million will attract just 50%. In effect, part of the gift will fall into the post-2026 regime even though it was made beforehand.

Another subtlety is that post-Budget gifts can reduce a person’s £1 million relief allowance. For example, if Mary gifts business shares in May 2024 (before the Budget) and farmland in May 2025 (after the Budget but before 2026), and she dies in 2027, the second gift will eat into her £1 million allowance, reducing the amount of full relief available on later gifts.

Finally, any gifts made on or after 6 April 2026 will automatically fall under the new system. The £1 million allowance will effectively operate like the nil-rate band, refreshing every seven years. However, current draft legislation does not allow this allowance to be transferred to a spouse or civil partner, which could have major implications for family wealth planning.

The Transitional Rules for Trusts

The new system also reshapes how trusts holding business or agricultural assets are treated for IHT relief purposes. From 6 April 2026, each relevant property trust will be given a £1 million “trust allowance” for 100% APR/BPR relief. Once this allowance is used, any further qualifying assets held in that trust will only receive 50% relief. This affects both ten-yearly and exit charges.

Trusts established before 30 October 2024 and holding qualifying assets before that date are known as pre-commencement trusts. These trusts will generally receive a fixed £1 million allowance and can continue to rely on the current rules until their first ten-yearly anniversary after 6 April 2026. This offers trustees a window of opportunity to plan distributions or restructuring before the new regime bites.

Trusts created after 30 October 2024 face stricter limitations. They will only receive the £1 million allowance from April 2026 if they were funded with assets that qualified for full relief in the settlor’s hands at the time of transfer. If the trust instead receives cash or non-qualifying assets and later buys business or agricultural property, it will not benefit from 100% relief – only 50%.

Furthermore, once a settlor’s cumulative transfers into various trusts exceed £1 million, any additional qualifying transfers into other trusts will only attract 50% relief. This closes a previous planning route that allowed individuals to establish multiple trusts to maximise reliefs.

What the Changes Mean for You

In practical terms, the transitional rules mean that timing is everything. A gift made before 30 October 2024 may escape the new limits entirely, while gifts or trust transfers made afterwards could fall partially or fully within the new cap depending on when the donor dies or when the trust’s next chargeable event occurs.

For individuals, surviving seven years after the gift remains crucial. For trusts, the ten-yearly charge date becomes the key milestone. These periods determine whether the old or new relief limits will apply.

Couples and families should also take note: because the £1 million allowance is not transferable between spouses, failing to plan ahead could result in unnecessary exposure to IHT on shared assets. It is essential to review ownership structures, succession arrangements and potential inter-spousal transfers well before the 2026 deadline.

Finally, it’s worth noting that the legislation is still in draft form. Further detail and possible revisions may emerge before it becomes law. However, waiting for final legislation may leave too little time to act effectively, so it is prudent to review estate and gifting strategies now.

Steps to Take Now

There are several proactive steps individuals and trustees should consider before the changes take effect:

  • Review your estate and asset holdings to identify which qualify for APR or BPR.
  • Document and analyse all prior gifts, especially those made since 30 October 2024, to understand how they may interact with the transitional rules.
  • Consider accelerating gifts or trust transfers where appropriate, particularly before 30 October 2024, to lock in current relief levels.
  • Review your will and trust structures to ensure they are optimised for the new regime.
  • Seek professional advice to model how future events, such as survival periods or trust anniversaries, could affect the amount of relief available.

In Summary

The upcoming changes to APR and BPR represent one of the most significant shifts in IHT reliefs for decades. While the reforms aim to limit the overall value of tax-free business and agricultural transfers, the transitional and anti-forestalling rules mean that actions taken today can still have lasting consequences after 2026. Early and well-informed planning remains the best way to preserve relief and reduce future tax exposure.

Talk to Our Experts

At Williamson & Croft, our experienced tax and estate planning specialists can help you navigate the complex transitional landscape of IHT, APR and BPR.

We provide clear, practical guidance on when and how to make gifts, how to structure trusts efficiently, and how to protect your wealth for the next generation.

Don’t wait until 2026 to review your position – by then, many of the most effective options may have passed.

Contact us today for a confidential consultation and discover how we can help you make the most of the current rules while preparing for the future.