This post has been contributed by Amanda Taylor, University of London Teaching Fellow for Equity and Trusts.
In the Autumn Budget of 2024, the Government announced a number of reforms to agricultural relief and business property relief. These reforms will directly impact the amount of Inheritance Tax (IHT) payable on certain business and agricultural properties.
The relief will be capped at 100% relief on the combined total of the qualifying properties up to the value of £1 million. Assets worth in excess of £1 million will only get 50% relief. The change will come into effect in April 2026.
How this relates to trusts is interesting as, in the well-established way, trusts have been used to pass on assets. Using a trust has helped to establish protection and control of the assets along with any tax management seen to be helpful.
The new reform will address assets that are already the subject of a trust, and different rules will apply to assets becoming the subject of a trust after April 2026.
Trusts created after October 29th 2024 will qualify for business relief until the 10th anniversary of the trusts’ creation when up to 3% of the value will be liable to IHT.
Any trusts created after the April 2026 date will have to pay IHT from the time of their creation. There will be various concessions being made for the transition periods.
It has been widely reported in the press that some of the farms of the wealthier families could well face an increased tax bill of more than 20% of the farm’s income. This will probably impact the very wealthy farm owners as the money may well have to be found by selling off some of the land.
Other, less valuable farms are generally considered to be protected by the reforms. It is thought that many of the smaller farms will be able to pay the tax bill out of non-farm assets.
Many farm owners made their worries known and if you were living in or visiting London in December 2024 you might well have seen the blockages caused by hundreds of tractors lining some London streets. The chaos was frustrating to many motorists, but amusing to others who were taking photographs as they wandered past the long lines listening to the honking horns of the tractors and requests being shouted by the farmers for waves to show support.
Tax has always been an emotive topic. I think it’s fair to say to suggest not many people positively like paying tax. However, without taxes being levied the government has problems paying for much needed services.
This particular tax may well be perceived, probably correctly, to be positively targeting the wealthy farm owners. Some may well observe that is not a bad idea; others obviously will disagree.
The income generated by the reforms will probably generously boost the income of the government.
What is quite certain is that the tax and trusts lawyers will be kept very busy. The window of opportunity to create beneficial new trusts over the assets is closing in April next year. After that there will, no doubt, be other opportunities to settle the land in other ways to try to minimise the tax bills.
In reality, it is something that few non-agricultural people will think about, of course, unless you happen to pass a stationary line of tractors in central London.