1. The £1 million IHT allowance for qualifying agricultural and business property increased to £2.5 million.
2. In addition, this allowance will be transferable between spouses/civil partners from April 2026, mirroring existing rules for the Nil Rate Band (NRB) and Residence Nil Rate Band (RNRB).
Changes explained:
- 100% Business Property Relief (BPR) and 100% Agricultural Property Relief (APR) (previously unlimited) will be limited to an allowance of £2.5 million from April 2026.
- Assets exceeding the £2.5 million threshold will receive 50% relief, meaning an effective IHT rate of 20% on the excess.
- If a deceased leaves their whole estate to their spouse or civil partner it will all pass free of IHT as usual.
- It has now been clarified that any unused portion of this £2.5m allowance can be transferred to a surviving spouse or civil partner, just like the main IHT allowances.
- The unused allowance transfer will apply even if the first death occurred before April 2026.
- This revision significantly reduces the tax burden compared to the original proposal, with couples able to pass on up to £5 million in combined assets.
3. The Nil Rate Band (NRB) and Residence Nil Rate Band (RNRB) thresholds will stay frozen at current levels until April 2031,
Changes explained:
- The Nil Rate Band (NRB) allowance means an individual to leave up to £325,000 of their estate to anyone free of IHT.
- The Residence Nil Rate Band (RNRB) allows an individual to leave their main residence to their direct decedents free of IHT up to a limit of £175,000.
- Any unused NRB and RNRB can be transferred to a surviving spouse, which is how couples can leave up to £1million to their children/ direct decedents free of IHT.
- Both the NRB and RNRB will remain at current levels until April 2031.
- The impact will be that as time passes, rising asset values will result in more estates exceeding these allowances, and IHT becoming payable on more estates.
If you would like to discuss the above, or any other succession planning matters, please contact our Suzie Falconer on s.falconer@wright-crawford.co.uk.
