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Inheritance Tax Nil Rate Bands
The inheritance tax nil rate band is currently £325,000, and the residence nil rate band is £175,000. Before the Budget, these nil rate bands were frozen until 6 April 2028. However, the Chancellor has now extended this freeze for two more years until 6 April 2030.
The residence nil rate band applies when a home is left to a direct descendant, like a child or grandchild. If the estate is worth more than £2 million, the residence nil rate band decreases by £1 for every £2 the estate exceeds this amount. If the estate is valued at £2.35 million or more, the residence nil rate band is not available at all.
You can read more about the impact of extending the freeze on the Government of the UK website at Inheritance Tax Nil Rate Band and Residence Nil Rate Bands from 6 April 2028.
Comments on Nil Rate Bands
The inheritance tax nil rate band has been £325,000 since 6 April 2009. By freezing these bands, more estates will be subject to inheritance tax. Now, the combined nil rate band and residence nil rate band are less than the value of a modest house in many areas.
Spouses and civil partners can together leave an estate worth up to £1 million without paying inheritance tax, as long as it includes a home worth £350,000 left to direct descendants. This provision offers a glimmer of hope, potentially easing the tax burden for many families.
Business Property Relief and Agricultural Property Relief (BPR and APR)
One of the less popular Budget changes is the introduction of a £1 million cap on the 100% relief rate for agricultural and business property. This £1 million limit applies to the total value of both business and agricultural properties. Any eligible property above this limit will receive only 50% relief, which means an effective inheritance tax rate of 20%.
Additionally, the relief rate will drop from 100% to 50% for all shares that are not listed on recognized stock exchanges, like the AIM. There will be a technical consultation on these changes in early 2025, and they will take effect from April 2026. You can find more details in the policy paper on the UK government website, titled Summary of Reforms to Agricultural Property Relief and Business Property Relief.
The Government also plans to extend agricultural property relief to include environmental land management from 6 April 2025. The policy document is available on the UK government website at Agricultural Property Relief and Environmental Land Management.
Comments on BPR and APR
Many farms have been in the same family for generations. The Agricultural Property Relief (APR) allowed these farms to be passed on without paying inheritance tax, provided certain conditions were met. With the new Budget changes, the relief will only apply to the first £1 million of agricultural and business property.
While it is still possible to pass on assets without inheritance tax if the donor survives seven years after making a gift, this might only sometimes be achievable. If a death is unexpected, the reduced relief could force farmers, who often have valuable assets but limited cash, to sell land to pay the inheritance tax bill.
However, considering both the nil rate band and the residence nil rate band, a couple can pass on a farm worth up to £3 million free of inheritance tax. Reductions in the availability of Business Property Relief (BPR) will also raise significant concerns for those passing on a family business, potentially affecting the future of these enterprises.
This Budget introduces important changes to inheritance tax, extending the freeze on nil rate bands and limiting relief for agricultural and business properties. More estates may now pay inheritance tax, but couples can still pass on large assets without tax. Farmers and family business owners need to plan carefully to reduce tax impacts and take control of their financial future.
If you need help regarding tax resolution or compliance, please contact Tax Accountant at 0800 135 7323 or email info@taxaccountant.co.uk for expert advice.