IHTM25524 - AR/BR 100% relief allowance: individuals – apportionment – different titles of the estate on death
The estate on death for Inheritance Tax (IHT) purposes may contain more than one asset that qualifies for 100% Agricultural Relief (AR) or Business Relief (BR) and the assets may be held under more than one title as part of the death estate – for example, the free estate, a qualifying interest in possession trust or a gift with reservation (GWR) ceasing on the death of the deceased. In these circumstances, you will have to apportion any 100% AR/BR allowance between each qualifying asset.
Where the potentially relievable values (defined as the value that would qualify for AR/BR if the relief was unlimited, IHTA84/S124D (10)(b)) of all the qualifying assets exceeds the amount of the 100% AR/BR allowance available on the death, IHTA84/S124D (6) states that you should use the method provided in IHTA84/S124D (7) to apportion the allowance. This states that the 100% AR/BR allowance is available against all qualifying assets in the estate on death in the same proportion as each asset represents as part of all the qualifying assts in the estate.
Example 1
Vivek dies on 1 February 2027. Under his Will he leaves all his estate to his children, and this includes a sole trader business valued at £2m and agricultural land valued at £5m. He also had a qualifying interest in possession in a trust including unquoted shares valued at £1m and continued to reserve a benefit until his death in agricultural land he had gifted in 2017, now valued at £2m. In total his estate on death for IHT purposes, comprising his free estate, the trust and the GWR, included property qualifying for 100% AR/BR totalling £10m.
As Vivek’s spouse died before him on 1 October 2024, his personal representatives claimed her unused 100% allowance (IHTM25530) in full, and as he had made no lifetime transfers (apart from the GWR) the total amount of 100% AR/BR allowance available on his death is £5m. The allowance is apportioned as follows:
Sole trader business (free estate): (£2m ÷ £10m) x £5m = £1m 100% AR/BR. The balance of £1m qualifies for 50% relief, leaving £500,000 chargeable.
Agricultural land (free estate): (£5m ÷ £10m) x £5m = £2.5m 100% AR/BR. The balance of £2.5m qualifies for 50% relief, leaving £1.25m chargeable.
Unquoted shares (trust): (£1m ÷ £10m) x £5m = £500,000 100% AR/BR. The balance of £500,000 qualifies for 50% relief, leaving £250,000 chargeable.
Agricultural land (GWR): (£2m ÷ £10m) x £5m = £1m 100% AR/BR. The balance of £1m qualifies for 50% relief, leaving £500,000 chargeable.
When apportioning the 100% AR/BR allowance, remember that it only applies to chargeable transfers of relievable property. Transfers of relievable property to an exempt beneficiary will not use any part of the 100% allowance.
Example 2
Richard dies on 1 May 2029. By his Will he leaves his farming business, including agricultural land, valued at £4m to his son. He leaves the rest of his estate, including relievable property valued at £2m, to his surviving spouse. He also had a qualifying interest in possession in a trust including unquoted shares valued at £1m that passes to his son on his death. He had 100% AR/BR allowance of £2m available on his death (£500,000 had been used against a gift of relievable property made within 7 years of his death in 2026).
His 100% AR/BR allowance must be apportioned between the property qualifying for 100% relief in his estate. But the relievable property passing to his surviving spouse will not qualify for 100% relief as it is an exempt transfer (50% relief applies if the value after relief needs to be included in any calculations). The 100% allowance is apportioned as follows:
Farming business (free estate): (£4m ÷ £5m) x £2m = £1.6m 100% AR/BR. The balance of £2.4m qualifies for 50% relief, leaving £1.2m chargeable. If the legacy is free of tax, it must be grossed up (IHTM26121).
Unquoted shares (trust): (£1m ÷ £5m) x £2m = £400,000 100% AR/BR. The balance of £600,000 qualifies for 50% relief, leaving £300,000 chargeable.