Budget 2024 – challenges and opportunities for landowners
Insight

The first Budget from a Labour government in 14 years was a challenging one for landowners and their families. The Chancellor announced plans to cap Agricultural Property Relief (APR) and Business Property Relief (BPR) from Inheritance Tax (IHT). This is a seismic change that upends decades of careful succession planning. However, as the dust settles, it is clear that there are opportunities here, too, and a window to take advantage of them.
What is changing?
From 6 April 2026, each individual will have a combined allowance of £1m for APR and BPR with all value in excess of the allowance charged to IHT at 20% (half the usual rate). The Government’s announcements so far suggest that this allowance may not be transferrable between spouses, but there is no definitive guidance on this yet.
It is understood that any trusts settled before Budget Day (30 October 2024) will also have their own £1m allowance. Trusts settled after Budget Day will share an allowance, so if a landowner settled two new trusts the trusts would have an allowance of £500,000 each.
The new rules will apply to any transfers made on or after Budget Day where the charge to IHT occurs after 6 April 2026. Deaths or IHT charges on trusts that fall before 6 April 2026 will be taxed under current rules, with up to 100% APR or BPR. Lifetime transfers made before Budget Day will still be taxed under the old rules even if the donor dies after April 2026.
What is not changing?
Most coverage of the Budget has focused on what will change, but some important planning tools for landowners will remain exactly the same.
First, the lifetime gifting rules are unchanged. Anybody making a significant outright lifetime gift can do so without IHT so long as they survive the gift by seven years. If the donor survives at least three years from the gift, then taper relief applies and the IHT bill is reduced by 20% each year until the seventh year when no IHT is charged. In other words, the same IHT is levied if a landowner makes a significant gift and dies within three years, but after three years there is a significant tax saving.
Secondly, holdover relief for Capital Gains Tax (CGT) continues to be available for gifts of relievable property. If a landowner makes gifts of assets that qualify for either APR or BPR (at 50% or 100%) they can do so without an immediate charge to CGT: the gain is held over and the recipient of the gift inherits the base cost of the assets from the donor. While this can mean missing out on the date of death uplift (assets owned by the deceased are rebased on death for CGT, as are assets in a qualifying interest in possession trust where the deceased had a life interest), holdover relief allows lifetime gifts to be made without having to fund an upfront tax charge.
Finally, the means by which APR and BPR are assessed (including the so-called Balfour test) stays the same, too. In summary, Balfour planning involves managing activities across a whole estate as a single, trading business. That business will usually be a predominantly farming and woodland business, but is likely to include other activities reflecting the variety of the estate. A typical farming and woodland business on a varied estate will almost always include residential properties commercially let to non-agricultural tenants, the income from which is important to diversify from farming and other potentially volatile trading activities. The estate business (often a farming partnership) must be “wholly or mainly” trading, meaning more than 50%, assessed over a range of factors including turnover, profit, capital, time etc. Before the Budget, some commentary suggested that this test might increase to 80% trading. Balfour planning is almost the only way in which the value of residential properties can be relieved from IHT. A 50% IHT relief on these properties is likely to remain beneficial given the value of residential property in most parts of the UK. Landowners should therefore continue to use Balfour planning to attract the lower 20% IHT rate that will apply above the £1m cap.
For APR, land owned for seven years and occupied for agriculture by tenants is still relievable, despite concerns that this might be changed in the Budget.
Time-limited opportunities
Landowners have until April 2026 to take advantage of the current rules and might consider setting up or winding up trusts.
Relievable assets can be transferred to a new trust before April 2026 without an upfront IHT charge, and with holdover relief for CGT. Any transfers out of that new trust should be free of IHT for the first ten years, unless anti-forestalling measures apply after 2026. For the first ten-year anniversary charge and any subsequent exit charges, we expect IHT to be charged at up to 3% on the excess value (half the usual 6% rate). This could be a good way to capture relief before it is capped, as long as the trustees have a clear plan to pay future IHT charges. After April 2026, transfers of relievable assets to a new trust will be subject to an upfront IHT entry charge of 10% on any value in excess of £1m.
Relievable assets can also be transferred out of existing trusts within the ten-year charging regime before 6 April 2026 with no IHT charge. This is an option where there is a clearly defined successor who is ready to take personal ownership of estate assets, and is especially attractive if paying IHT at 3% every ten years is unpalatable. Transferring assets out of interest in possession trusts (or onto a discretionary fund within the trust) might also be an option, but this depends on the terms of the trust. Alternatively, existing trusts could be retained to take advantage of each having its own £1m allowance, so long as this does not complicate the running of an estate business.
The usual capital and income rules will continue to apply to trusts. IHT and CGT are capital expenses and trust income can only be used to pay tax where nobody is entitled to it by right (ie there is no life tenant) or if the trustees still have power to accumulate (ie capitalise) income. This means that life interest trusts, and trusts where income can no longer be accumulated, should start planning now to consider how to fund IHT charges on assets that have up to now been relievable in full.
What next?
The Government has not yet legislated for the changes they propose, and we do not expect Parliament to do so until later in 2025. There is due to be a consultation on how trusts will be taxed under the new regime. It is still possible that the Government may give way to pressure to, for example, increase the £1m allowance or defer the point at which the new rules come into effect.
However, while we do not yet have the small print, landowners should make the most of the window of opportunity before 2026 to review their current estate planning and take appropriate steps. This should start with a review of their estate’s likely IHT liability once the changes take effect and move on to consider whether any of the suggestions we have outlined here might be relevant to their circumstances.
While tax rules change, the wisdom of careful and timely succession planning remains constant.
This article is part of the Rural Estates Newsletter 2025, click here to read.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, January 2025