Tag: finance

Inheritance Tax Changes Effective 6 April 2026: Key Considerations for APR and BPR Planning

The 2024 Autumn Budget introduced significant reforms to Inheritance Tax (IHT), particularly relating to Agricultural Property Relief (APR) and Business Property Relief (BPR). These changes, scheduled to take effect on 6 April 2026, represent a shift from the previously uncapped regime and could materially impact succession and estate planning.

This note highlights the main legislative developments and summarises planning opportunities discussed during a recent consultation with counsel. The client in question owns 100% of a trading company and is in his mid-70s; his spouse is approximately six years younger.

Background: APR/BPR Regime Pre-Budget 2024

Before the 2024 Autumn Budget, individuals owning qualifying assets could transfer them without significant IHT concerns, thanks to full APR/BPR relief. The new framework introduces caps and conditions that necessitate proactive planning.

Key Budget 2024 Announcements

  1. Introduction of a £1 million Allowance
    • A £1 million allowance will apply per individual to the combined value of property qualifying for 100% APR or BPR.
    • After this threshold, qualifying assets will attract only 50% relief.
  1. Clarifications from the Spring 2025 Consultation
    • The £1 million allowance is not a lifetime limit. Like the nil-rate band, it refreshes every seven years.
    • Lifetime gifts of qualifying assets will not use the allowance if the donor survives the gift by seven years.
    • The allowance is not transferable between spouses or civil partners.
    • Trusts receiving qualifying property will also enjoy a £1 million APR/BPR relief in calculating IHT on ten-year anniversaries or exit events.
    • IHT due on APR/BPR assets may be paid in ten equal, interest-free annual instalments.

Note: Although the instalment option is welcome, the estate may need to pay income tax on any income received to fund the IHT payments, reducing the net amount available.

Planning Suggestions

  1. Share Transfers Between Spouses
    • A long-term UK-resident shareholder (‘A’) should consider gifting qualifying shares to their long-term UK-resident spouse/civil partner (‘B’).
    • After two years of ownership, ‘B’ may transfer up to £1 million of shares into trust. This process can be repeated every seven years.
    • ‘A’ can carry out the same strategy independently, allowing for effective use of both £1 million allowances.
  2. Will Revisions
    • Both spouses should revise their wills to provide for a transfer of up to £1 million of qualifying assets into a discretionary trust if they have not used their relief in the preceding seven years. This helps preserve unused APR/BPR allowances on death.
  3. Company Qualification Review
    • Several types of assets can qualify for BPR, including unquoted shares in a trading company.
    • Relief is not available if the company is wholly or mainly engaged in:
      • Dealing in securities, stocks, or shares
      • Dealing in land or buildings
      • Making or holding investments
    • It is advisable to review balance sheets and business activity to confirm BPR eligibility.
  4. Gifts with Reservation of Benefit
    • Lifetime gifts may trigger reservation of benefit rules, especially if the donor continues to receive income (e.g. director’s fees).
    • With proper structuring, this should not impede implementation of the planning strategies.

Next Steps

If any of the matters above raise questions or merit further discussion, please feel free to get in touch.

Contact
Robert Schon
📧 rschon@streathers.co.uk
📞 07749 051312

Important Changes to Inheritance Tax (‘IHT’) on Shares in an Unquoted Trading Company – Act Now

The October 2024 Budget introduced significant changes to how IHT applies to shares in unquoted trading companies. These changes come into effect from 6 April 2026 and will have a big impact on business owners and their families.

What’s Changing?

From 6 April 2026:

  • If you pass away owning shares in an unquoted trading company, and those shares go to someone other than your long-term UK tax resident spouse or civil partner, the value above £1 million will be taxed at 20% IHT.
  • This replaces the current, more generous IHT reliefs available for business assets.

Lifetime Gifts – A Planning Opportunity

You can still gift up to £1 million worth of shares every 7 years with 0% IHT, as long as you’ve owned the shares for at least 2 years.

  • Your spouse can also use this allowance, provided they meet the same conditions.
  • This could save a couple up to £800,000 in IHT every 7 years.

Plan Before April 2026

If you act before April 2026, you can still take advantage of the current, more favourable rules:

  • For example, transferring shares into a trust before this date could significantly reduce future IHT, provided you survive 7 years after the transfer.

What Happens After April 2026?

  • In the event that the estate of the deceased is not passing to their spouse (see above), the value of trading company shares above £1 million will be taxed at 20%, payable over 10 years with no interest. However, if the company is sold during the 10-years after the donor’s death, the entire outstanding IHT becomes due.

If a married couple owns trading company shares and one dies, the survivor can still pass on £1 million tax-free of qualifying shares every 7 years. Example:


If, when the second person in the couple dies, the trading company is valued at £11.65 million, the IHT bill at best would be:

  • First £1.65m taxed at 0% = £0 IHT
  • Remaining £10m taxed at 20% = £2 million IHT
  • So, £200,000 per year would need to be paid to HMRC every year for 10 years. This would typically come from dividends, which are themselves subject to income tax so the £200,000 pa  will need to be funded from post-tax monies.

If HMRC decides the company is actually an investment company, not a trading company:

  • The IHT rises to 40%, and
  • The 10-year, interest-free payment option is lost.

What Should You Do Now?

To reduce the IHT burden, especially on the death of the second spouse, early planning is crucial:

  • Review the company’s activities and assets to make sure it qualifies as a trading business and is eligible for relief.
  • Plan regular lifetime transfers (every 7 years if possible) to make the most of the 0% IHT allowance on up to £1 million of shares per person.

Need Help?
If you’d like to discuss how these changes might affect you or your family, please get in touch with Robert Schon.📞 07749 051312
📧 rschon@streathers.co.uk