Allowing unused agricultural and business property relief (APR / BPR) from inheritance tax (IHT) to be transferred between spouses and civil partners is a “helpful” change announced in last week’s budget, a leading expert on farm tax planning has said.

Addressing a meeting of the NI Rural Valuers Association last Friday, Jeremy Moody from the Central Association of Agricultural Valuers said his organisation was among those who pressed hard for the amendment.

Under the proposals announced at the 2024 autumn budget, a new £1m threshold is to apply for APR and BPR combined from April 2026. However, unlike other IHT allowances, the initial plan announced by chancellor, Rachel Reeves, was that the £1m relief could not be transferred between spouses.

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According to Moody that created a problem for many farm families, with a spouse potentially deciding not to pass on any assets in their will to the next generation so as to ensure the surviving spouse had “somewhere to live in and something to live on”.

“That whole pile of agony is now removed. It doesn’t solve all problems, but it gives considerable flexibility for the small and medium sized farmers particularly,” said Moody.

He maintained that it was probably a concession the UK government could make, without it being described as a “U-turn” on the front of every newspaper.

However, he is not optimistic that other amendments could yet be made by MPs to tax laws within the Finance Bill, including raising the APR / BPR threshold to £5m.

As well as a Labour government working majority of 169, he argued that very few Labour MPs will be willing to sacrifice their career on the back of this issue.

“Do simply assume that what is on the table is going to happen,” he said.

Frozen

While he welcomed the change to the £1m threshold, he pointed out that other IHT allowances have been frozen for a further year to April 2031.

As a result, the personal IHT allowance of £325,000 will remain unchanged since it was last updated in 2009 – “given the ravages of inflation” it is currently worth the equivalent of £209,000, said Moody.

With the various allowances frozen and the new APR / BPR threshold in place from next April, it does mean some difficult conversations will have to be had around kitchen tables.

“If the IHT is enough to make a family sit down and think about where it’s going, what on earth is,” said Moody.

He suggested part of that conversation will involve working out just who owns what.

For larger farms with assets of well over £2m, one obvious solution is to gift assets to the next generation and hope to live for seven years (the seven-year rule).

However, Moody warned of the danger of Gifts with Reservation of Benefit citing the example of someone who leaves the main farm dwelling to the next generation, while continuing to live in the residence.

“If you are not paying market rent, the revenue will look at you and laugh itself hollow, saying you never gave it,” he said.