The proposed changes to the rules for Inheritance Tax (IHT) for assets qualifying for Agricultural Property Relief (APR) and Business Property Relief (BPR) have been a hot topic for close to a year now.  The upcoming changes have meant that families must consider their IHT exposure and options available to mitigate, a key one being by making lifetime gifts.  Whilst tax is a driver in terms of shaping a future succession plan, it is vital families also consider the wider business and family dynamics to ensure the plan ultimately put in place works for future generations. 

If a business owner looks to manage IHT exposure by making a lifetime gift then for IHT this will remain within their estate should they die within the 7 year period following the gift. Planning may be needed here around the timing of gifts as the new £1million IHT free allowance for business and agricultural assets, together with the IHT free Nil Rate Band of £325,000 are allocated to lifetime gifts in the 7 year period preceding death in date order and applied in priority to the assets still owned on death.         

Before making a lifetime gift, it is important that we not only consider the timing of those gifts as set out above but also consider other taxes that may be triggered as part of making the gift, such as Capital Gains Tax (CGT) and Land and Buildings Transaction Tax (LBTT). Passing on assets such as a farm to the next generation is a deemed market value disposal for CGT purposes and can give rise to a CGT liability in lifetime. Relief from CGT for qualifying assets, such as a farm, can be available in the form of Holdover Relief, which provides a deferral of the CGT that would otherwise arise, again though the position needs assessed before undertaking the asset transfer. 

In contrast, where an asset is inherited on death, the value of the asset is uplifted to market value at the date of death for CGT purposes. Whilst there may be IHT exposure on death, the uplift in value for CGT purposes should not be overlooked and can, in some cases, provide a better overall result, subject to the value of the assets held at the point of death.    

For LBTT, where there is also debt transferring to the recipient of the asset then we must also consider if there is LBTT arising on the gift.  

Another area where care must be taken is when an asset(s) is given away, for instance a share in the Partnership and the Partner who has made the gift continues to receive the same level of Partnership income going forward.  HMRC have special tax rules that can kick in, if HMRC can argue that you have retained a benefit in the asset(s) you have given away. These rules are referred to as the “Gift with Reservation of Benefit” rules. The net effect of the rules, should they apply, is that you can be treated at the time of death as not having made the earlier gift, even after 7 years has elapsed from the time of the gift. Care must therefore be taken when considering what to gift away and what your post-gifting income for example will look like and can this be substantiated. 

Where a taxpayer has a spouse, then small changes can be made to significantly improve the IHT position, by ensuring both spouses £1m IHT free Allowances are utilised. Often the farm is owned by one spouse and, if managed correctly, transferring the farm into joint names with your spouse can make use of two £1m Allowances. Such changes do require input from your solicitor to ensure the gift is effective and your Wills reflect the changes.  

An outright gift to your children or into trust will also require legal input and if you are thinking about passing on assets in advance of the upcoming IHT changes coming into play from 6 April 2026, we recommend you contact us as soon as possible. 

A potential quick fix to manage your IHT exposure for a period of time or whole of life, is to consider Life Insurance. This can be structured for example for a period of time, such as 7 years of 10 years and can provide the breathing space the family perhaps need to evaluate the options available before making irreversible commitments.