Would you require a new will in light of the recent inheritance tax blow to farmers and business owners?

A much-needed gap in business and agricultural property reliefs has been addressed in draft legislation

Following the government's release of additional information about new regulations that will make farmers and business owners subject to inheritance tax starting next year, they are being advised to review their wills.

The proposed 100% inheritance tax (IHT) relief for the first £1 million of qualifying business or agricultural assets will no longer be transferable to a spouse or children as of April 2026, according to draft legislation.

According to Elsa Littlewood, a tax partner at accountants BDO, "Many families were hoping that the draft legislation would make the one million allowance transferable, aligning it with the residence and inheritance tax nil-rate band regulations.

"The proposed law attests to the fact that this has not occurred. Regretfully, this will make an already complicated inheritance tax system even more complicated and could punish the careless.

We examine strategies to evade inheritance tax in a different article.

How is the inheritance tax changing?

Due to modifications to the inheritance tax regime, the first one million acres of combined business and agricultural property will continue to be completely exempt from inheritance taxes as of April 2026.

On assets over £1 million, however, only 50% of the relief will be applicable, meaning that a 20% inheritance tax ratehalf of the standard ratewill be applied above the threshold.

The allowance of one million will be given to each individual. People can transfer qualifying assets to a spouse who has lived in the UK for a long time without paying inheritance tax on them or upon their death thanks to the current spousal exemption, which has not changed.

Some, however, hoped that the draft legislation would conform to the existing residence nil rate band (RNRB) and inheritance tax nil rate band (NRB) regulations.

When someone passes away, any unused allowance may be transferred to their spouse or civil partner's estate. But this hasn't taken place.

The resulting effect is that, although the spousal transfer rules would prevent an inheritance tax charge for a business owner who leaves qualifying assets to a surviving spouse, the spouse who leaves assets to their children would only receive a 1 million allowance instead of a 2 million allowance.

A business owner's daughter told BFIA that she is terrified of the changes to the inheritance tax that have affected their family business.

In addition, pensions will be factored into inheritance tax calculations starting in April 2027.

How to avoid inheritance tax.

A lot of farmers and business owners had already heeded advice about transferring their farming or business assets to the following generation prior to the rule changes.

From a tax standpoint, this was once a fairly straightforward procedure, but that is no longer the case.

According to Littlewood, some people who were impacted by the new inheritance tax regulations have begun implementing new strategies to lower their IHT bill or avoid inheritance tax.

A lifetime transfer of business assets to a spouse free from IHT is a choice made by some business owners. Once the necessary two-year ownership period is determined, this can help guarantee that each spouse owns £1 million in qualifying assets," she said.

In order to provide certainty regarding the ultimate beneficiaries of the business assets, some have opted to establish a trust that grants the surviving spouse a life interest in them exclusively. Families must, however, confirm that this is a tax-efficient choice.

Most importantly, she said, people should make sure their wills are current and take these impending changes into consideration.

The one bright spot in today's update is that, starting in April 2030, the one million allowance will be increased in accordance with inflation.