Consultation outcome

Reforms to Inheritance Tax agricultural property relief and business property relief: application in relation to trusts — Summary of responses

Updated 21 July 2025

Executive summary

At Autumn Budget 2024, the government announced several measures to reform Inheritance Tax to fix the public finances and support public services. This included plans to reform agricultural property relief and business property relief from April, by introducing a £1 million allowance to the combined value of property that qualifies for 100% business property relief or 100% agricultural property relief and reducing the rate of business property relief available from 100% to 50% for shares admitted to trading on a recognised stock exchange which are not ‘listed’.

These reforms will have an impact on the Inheritance Tax payable by certain trusts comprising of property that qualifies for agricultural property relief or business property relief. A technical consultation on the application of the reforms in relation to trusts ran from 27 February 2025 to 23 April 2025.

The consultation received 122 responses from a range of respondents. HMRC also met with several stakeholder representative groups to listen to their views. A list of organisations who provided written responses to the technical consultation is included in Annex A.

Having considered the consultation responses and wider feedback, the government has made the following changes to the policy design originally included in the technical consultation document:

• the £1 million allowance will be indexed in line with the Consumer Price Index (CPI). This will remain fixed up to and including tax year 2029 to 2030, in line with maintaining the nil rate band and Residence nil rate band at current thresholds

• there will be no extension to the related property rules (section 161 Inheritance Tax Act 1984)

The government is also taking this opportunity to confirm it will update the longstanding exemption from Inheritance Tax for Scottish Agricultural Leases to ensure that newer equivalent Scottish leases are also exempt from Inheritance Tax.

To provide certainty for those impacted, for the remainder of the of proposals, the government will be proceeding as outlined in the consultation document. Draft legislation and Explanatory Notes are published alongside this response document.

Guidance will be published on GOV.UK to support customers to understand the changes, in due course.

Introduction

Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who has died, or makes a chargeable transfer during their lifetime. On death, Inheritance Tax is paid on the value of the estate transferred, and on the value of any chargeable lifetime transfers of property (meaning gifts to individuals or transfers of property into trust) in the 7 years before death, above a threshold known as the nil rate band (NRB). The NRB is currently set at £325,000. There are several further thresholds and exemptions which may be available, including the residence nil rate band (RNRB) and exemptions for property transferred to a spouse or civil partner.

At Autumn Budget 2024, the government announced several reforms to agricultural property relief and business property relief from Inheritance Tax. In particular:

• a new £1 million allowance will apply to the combined value of property that qualifies for 100% business property relief or 100% agricultural property relief or both. After the £1 million allowance has been exhausted, relief will apply at a lower rate of 50% to the combined value of qualifying agricultural and business property

• the rate of business property relief available will be reduced from 100% to 50% in all circumstances for shares admitted to trading on a recognised stock exchange which are not ‘listed’

These reforms will have an impact on the Inheritance Tax payable by certain trusts comprising of property that qualifies for agricultural property relief or business property relief where the value of that property exceeds £1 million. Property transferred into relevant property trusts is subject to a 20% entry charge paid by the settlor, and is then subject to ongoing Inheritance Tax charges paid by the trustees.

HMRC ran a technical consultation on proposals for how the reforms to agricultural property relief and business property relief would apply to trust charges to ensure to ensure that the reliefs worked as intended. The consultation was published on 27 February 2025 and closed on 23 April 2025.

Stakeholders were invited to respond to 9 consultation questions. The questions covered:

• how the changes will work for transfers made on or after 6 April 2026
• transitional provisions for transfers made between 29 October 2024 and 6 April 2026
• the introduction of anti-fragmentation rules for trust property settled on or after 30 October 2024
• how the announced changes will apply to special trusts

The consultation also announced that the option to pay Inheritance Tax by equal annual instalments over 10 years interest-free would be extended to all property which is eligible for agricultural property relief or business property relief.

About the responses

A total of 122 responses were received, 73 via the Microsoft webform, 50 via email. Responders included industry representatives, tax and legal professionals, business owners and individuals.

Of these responses, 9 were removed from the analysis (duplicates or empty responses). The remaining responses varied significantly in detail and did not answer every question. HMRC also met with several stakeholder representative groups to listen to their views prior to the conclusion of the consultation. The government is grateful to those who submitted written responses to the consultation and those involved in meetings.

This document contains a summary of responses to the questions set out the consultation. Some written respondents also raised overarching points in general comments. Where these were in scope of the technical consultation these have included these under Question 9.

Summary of responses and government response

Transfers made on or after 6 April 2026

Question 1: Are the rules on the application of £1 million allowance for individuals sufficiently clear for transfers made on or after 6 April 2026? What are your views on this?

The majority of responses to this question from tax and legal professionals suggested these rules were sufficiently clear. Many responses asked for additional case studies or worked examples in specific circumstances both for this question and in respect of other questions asked in the consultation.

Most respondents welcomed that the allowance refreshed on a 7-year basis, as a familiar mechanism within the NRB, though it was highlighted that not allowing for transfers between spouses may cause confusion as this is a divergence from the NRB and RNRB. Some respondents asked for clarity on whether the limit would be index linked in the same way as the NRB and RNRB.

Views on the chronological application of the relief were mixed. A few respondents welcomed the simplicity and certainty provided by the approach and noted it aligned with the NRB. However, some respondents suggested that individuals and personal representatives should be able to elect which transfers the allowance was set against rather than it being strictly chronological to enable greater flexibility in tax planning, for example to prevent the value of the allowance in tax terms being diluted by taper relief.

Question 2: Are the rules on the application of the £1 million allowance for 10-year anniversary charges and exit charges sufficiently clear for property settled on or after 6 April 2026? What are your views on this?

Again, responses from tax and legal professionals suggested the rules were generally sufficiently clear. There were requests for some clarification, for example how the rules apply where there are multiple settlors.

As with responses to Question 1, some respondents suggested that the allowance should be discretionary rather than strictly chronological when applied to exit charges and 10-year anniversary charges. These responses suggested that there should be the ability to ‘save’ the allowance for future ten-year anniversary, or to pre-empt circumstances where beneficiaries receiving exits earlier in the 10-year window benefit from the allowance, to the detriment of beneficiaries of later exits.

Several respondents suggested that there may be a benefit to having additional rules around sharing information between trustees and settlors to ensure trustees understood how much of the settlor’s allowance they were entitled to. A few respondents suggested it could be useful for trustees should have the right to obtain information in order to support accurate relief claims.

Question 3: What are your views on the proposal to standardise the calculation of Inheritance Tax exit charges, so that all exit charges are calculated based on unrelieved values regardless of whether the exit takes place before or after the first 10-year anniversary?

Views on this were mixed. Some respondents saw this as a simplification. Others suggested that it would necessitate additional record keeping for the relieved and unrelieved value of the estate: the former to calculate the 10-year anniversary charge and the latter to calculate ongoing exits. Some respondents were opposed to the change on the basis that it would lead to higher rates of tax than the status quo for some trustees.

Several respondents set out alternative designs for standardisation. The most common proposal was that standardisation should work the other way — so that all exit charges would be based on relieved values. Other proposals included introducing a flat rate or allowing the settlors holding period to be added to the trustees’ holding period.

Government response

The government recognises the importance of customers having clarity and certainty in their tax obligations. The government will proceed with the policy design for individuals and trustees in relation to transfers made on or after 6 April 2026 as set out in the corresponding section of the technical consultation. The responses have provided a helpful basis to understand potential areas of ambiguity.

The threshold for the £1 million allowance for 100% agricultural property relief and business property relief will be indexed in line with CPI, but will remain fixed up to and including tax year 2029 to 2030, in line with maintaining the NRB and RNRB at current thresholds.

The government has considered the case put forward by some respondents to introduce an election process, rather than allocating the £1 million allowance in chronological order. While an elections process could allow greater flexibility in planning, the government considers that it would add significant further complexity and increase administration requirements for taxpayers and HMRC, as it would require the agreement of any affected party. This could cause difficulties where beneficiaries of lifetime transfers are different to beneficiaries of trusts settled by the deceased.

On that basis, the £1 million allowance will continue to be allocated on a chronological basis for both individuals and for trust charges. Timing of gifts and distributions is already a consideration individuals and trustees within the existing Inheritance Tax regime.

The government has considered whether further powers may be needed to enable trustees to gather information from settlors to fulfil their obligations, but considers trustees’ existing requirements to take ‘reasonable care’ should sufficiently facilitate this without adding an obligations and penalties regime.

The government notes the comments about standardisation of trust exit charges, but will continue with plans to harmonise trust exit charges to ensure the rate of tax on distributions is treated fairly and consistently, regardless of whether they fall before or after the first 10-year anniversary.

Transitional provision for trusts and transfers made before 6 April 2026

Question 4: What are your views on the proposed transitional provisions for qualifying agricultural and business property settled into a relevant property trust before 30 October 2024?

Question 5: What are your views on the proposed transitional provisions for qualifying agricultural and business property settled into a relevant property trust during the transitional period?

Most respondents were supportive of the introduction of a transitional period. Noting that older individuals may have less time to restructure their affairs, there were some requests for this to be extended further. Several respondents suggested that existing trusts should be exempt from ever being subject to the £1 million allowance.

Some respondents raised disparity of treatment, complexity and additional record-keeping requirements introduced by having multiple bases for calculation, depending on when chargeable events took place. Many asked for HMRC to provide further guidance and communications to ensure that existing trustees understand their obligations.

Government response

The government welcomes the general support for the transitional period provisions. To provide certainty for those impacted, the government intends to proceed with the provisions as set out in the technical consultation document.

The government is content that, as designed, the transitional rules provide fairness for existing arrangements.

Anti-fragmentation: property added to multiple trusts on or after 30 October 2024

Question 6: What are your views on introducing a single £1 million allowance for 10-year anniversary charges and exit charges where a settlor has transferred property into multiple trusts on or after 30 October 2024?

Respondents generally understood the rationale for introducing this anti-fragmentation provision; to ensure that those who used trusts for planning did not have a loophole to access additional allowances. Some respondents, however, raised examples of circumstances where an individual may want to fragment for reasons other than minimising tax obligation, for example to protect property shared between children. It was suggested that elements of the policy design may encourage fragmentation – for example because the allowance is not transferable between spouses.

Most respondents disagreed with an allowance that was fixed at the outset and preferred trustees to be able to elect, transfer or opt-out of using the £1 million allowance, particularly in circumstances where property within the trust was no longer relievable or if it had increased or fallen in value, though several noted the certainty this would provide trustees on the allowance available.

Similar concerns were raised to those in Question 2 about the information sharing necessary to enforce a single £1 million allowance at 10-year anniversary and exit charges and where responsibilities would lie.

Respondents asked for clarification, for example, on how the rules would apply to trusts created pre-October 2024 and how the rules interacted with other refreshes of allowances such as the NRB.

Question 7: What are your views on introducing rules similar to the existing ‘related’ property provisions for Inheritance Tax, so that multiple holdings by the same settlor across multiple trusts can be connected for valuation purposes?

Most respondents were against introducing a wider related property provision. The rationale for introducing it was less well understood, compared to the anti-fragmentation rule in Question 6. The provision was considered to be very complex to administer, particularly the information sharing required when beneficiaries and other trustees may have a limited relationship but would be dependent on each other’s actions.

Some respondents suggested this proposal did not reflect commercial reality, particularly where a person could transfer property via a gift and would still benefit from minority discounts.

Respondents felt that if it were included in the final design the scope should be narrower, for example it should not apply to trusts created before 30 October 2024 trusts. Respondents also raised questions about the breadth of what would be counted as related property in these circumstances, including property owned by a spouse or non-relievable property which would otherwise be treated more favourably than similar relievable property.

Government response

The government has considered the responses on the proposed anti-fragmentation and related property rules. The government will proceed with the anti-fragmentation rules as outlined in the technical consultation at Question 6. This is essential to prevent settlors from accessing multiple £1 million allowances by settling qualifying agricultural and business property into multiple trusts. The £1 million allowance will be allocated in chronological order and will apply for the lifetime of the trust. The government continues to consider this to be the most appropriate approach to ensure that trustees have certainty from the outset how much allowance they have available.

The government acknowledges the concerns raised regarding the difficulties with implementing a related property provision and believes that the anti-fragmentation rule as set out in Question 6 is a sufficient disincentive for settlors to fragment property. The government will therefore not proceed with the related property proposal set out in Question 7

The government anticipates that this will reduce the concerns or need for information exchanges between different parties and therefore also do not propose to introduce formal information sharing requirements.

Special trusts

Question 8: What are your views on the application of the £1 million allowance to special trusts, age 18 to 25 trusts and QIIP trusts?

Most respondents to this question welcomed the proposed treatment of 18 to 25 trusts, though some queried why this treatment was not available for relevant property trusts with multiple child beneficiaries where interests vest at a certain age.

Views on the qualifying interest in possession (QIIP) trust treatment were mixed. Some respondents felt that it was logical for QIIP to be aggregated into the free estate in a manner that followed familiar Inheritance Tax principles. Other respondents felt this treatment may be unfair, because the life tenant may have had limited influence over what the QIIP had invested in compared to trustees. Alternative suggestions included allowing a separate £1 million allowance per QIIP trust.

Government response

The government will continue with the rules on special trusts, age 18 to 25 trusts and QIIP trusts as set out in the consultation.

The government will not expand the treatment of beneficiaries of 18 to 25 trusts to other relevant property trusts with child beneficiaries.

Question 9: Do you have any further views on the application of the £1 million allowance to property which has been settled into trust?

Most respondents raised concerns about the complexity of the reforms, the corresponding administrative burden, and HMRC’s capacity to enforce the changes, including disputes on valuation.

Whilst not in scope of the consultation, the most common request made was for the allowance to be transferable between spouses and civil partners. Respondents queried the rationale for the approach particularly as it was a divergence from the transferable NRB and RNRB. Respondents suggested that this would add additional complexity and costs from estate planning and the need to rewrite wills.

Some respondents used this question to respond to the announcement that interest-free instalments would be extended to all property qualifying for agricultural property relief and business property relief. This proposal was generally welcomed. Although not in scope of the consultation, some respondents also used this question to request further easements to support customers to meet additional Inheritance Tax due as a result of the reforms.

Several respondents asked for clarity about the application of the reliefs and the £1 million allowance to pensions holding agricultural or business property, where these are considered to be within an estate for Inheritance Tax purposes from 6 April 2027

Government response

The government recognises that the introduction of the £1 million allowance adds some complexity and creates new obligations on those affected to ensure the correct amount of relief is claimed. However, the government believes that these changes strike the right balance between fixing the public finances in a fair way and limiting new administrative burdens when compared to alternative reforms. Those claiming these reliefs will continue to be required to value the estate for Inheritance Tax purposes, report and pay the Inheritance Tax due as they do now. As noted in Question 1, guidance will be published on GOV.UK in due course to support customers to understand the changes.

Any further changes to the reliefs or to wider taxes need to be balanced against the purpose of the reforms to support sustainability of the public finances. Several changes suggested by respondents, including making the £1 million allowance transferable between spouses or civil partners would carry an Exchequer cost. For this reason, the £1 million allowance will continue to be available for individuals and will not be transferrable.

The government’s position remains that agricultural property relief and business property relief will not be extended to assets held within pension schemes. For Inheritance Tax purposes, the nature of the underlying assets held by a pension scheme is not considered. This reflects the current policy on how such assets are treated.

Other issues

Scottish Agricultural Leases

On the death of tenant farmers, the value of Scottish Agricultural Leases passed on to successors can result in an Inheritance Tax liability in respect of a lease where there would not generally be a liability in relation to an English or Welsh tenancy. There is a longstanding existing exemption, that ensures that certain Scottish Agricultural Leases are not subject to Inheritance Tax. However, this exemption has not kept pace with the types of leases now in use.

Whilst not raised through consultation responses, stakeholders have asked the government to provide clarity on how the reforms to the reliefs will interact with the current rules on the exemption of Scottish Agricultural Leases. The government will make changes to the longstanding exemption to ensure that newer equivalent Scottish leases are also exempt from Inheritance Tax. Draft legislation for this change has been published alongside this document.

Next steps

Draft legislation to implement this measure has been published alongside this summary of responses for further technical consultation. The technical consultation on draft legislation will run for 8 weeks ending on 15 September. Details of how to respond have been published alongside the draft legislation.

Annex A: List of organisations which provided written responses to the consultation

• AAB Business & Tax Advisory LLP
• Agricultural Law Association
• AJ Wells and Sons Ltd
• Albert Goodman
• The Association of Taxation Technicians (ATT)
• Azets
• BDO LLP
• Boodle Hatfield LLP
• Brabners LLP
• Brook Lane Services Ltd
• Browne Jacobson LLP
• Charles Russell Speechlys LLP
• Chartered Accountants Ireland
• Chartered Institute of Taxation
• The Country Land and Business Association
• Cripps LLP
• Crowe U.K. LLP
• Deloitte LLP
• Duncan & Toplis Ltd
• Evelyn
• Ernst & Young LLP
• Family Business UK
• GAP Hire Solutions Ltd
• Gerald McDonald Group
• Goodman Jones LLP
• Greaves West & Ayre
• Historic Houses
• Horticultural Trades Association
• Hunters Law LLP
• Ian Macleod Distillers Ltd
• The Institute of Chartered Accountants in England & Wales
• Jarvie Plant Group Ltd
• KPMG LLP
• Kreston Reeves LLP
• The Law Society of Northern Ireland
• The Law Society Scotland
• Macfarlanes LLP
• Make UK
• Maurice Turnor Gardner LLP
• Mercer and Hole LLP
• Moore Kingston Smith LLP
• Newbank Garden Centre Ltd
• The National Farmers’ Union
• Oldfield Advisory LLP
• Penningtons Manches Cooper LLP
• PKF Francis Clark
• PricewaterhouseCoopers LLP
• RSM UK Tax
• S&W Group
• Saffery LLP
• Scottish Land and Estates
• The Scottish Plant Owners Association
• Snowdonia Hospitality & Leisure Limited
• The Society of Trust & Estate Practitioners
• Taylor Wessing LLP
• Turcan Connell
• UHY Hacker Young LLP
• Wedlake Bell LLP
• Wrigley’s Solicitors LLP