Government Opens Consultation on New £1 Million Trust Allowance for Inheritance Tax Relief – What You Need to Know
The government has launched a consultation on the proposed £1 million allowance for property settled into trusts that qualify for 100% Agricultural Property Relief (APR) or Business Property Relief (BPR). This is a major upcoming change to Inheritance Tax (IHT) planning, and it could have significant implications for individuals and families using trusts to pass on business or agricultural assets.
In this article, we explain what the consultation is about, what the proposed changes involve, and how you can have your say before the deadline on 23 April 2025.
What Is the New £1 Million Trust Allowance?
As announced in the Autumn Budget 2024, a new £1 million lifetime allowance will apply to property settled into trust that qualifies for 100% relief from Inheritance Tax under either Agricultural Property Relief (APR) or Business Property Relief (BPR).
Currently, when property qualifying for these reliefs is placed into trust, it is possible to claim 100% relief, meaning no inheritance tax is due on that transfer.
What’s Changing?
Under the new rules:
- Only the first £1 million of qualifying property placed into trust will receive full 100% relief.
- Any value exceeding the £1 million allowance will still benefit from relief, but only at a reduced rate of 50%.
This measure is designed to limit the use of trusts for sheltering large amounts of wealth from inheritance tax.
Why Is a Consultation Being Held?
The consultation process is designed to gather feedback on how this new allowance should be applied, including its interaction with:
- Existing trusts already holding qualifying assets.
- New trusts that may be set up in the future.
- Complex transitional arrangements for property placed into trust before and after the new rules take effect.
- Ensuring that the rules are clear and workable for trustees, families, and professional advisers.
Given that trusts are often used for long-term estate planning, the application of this new allowance could have wide-reaching effects on family businesses, farms, and landowners. The government is seeking views on whether the proposed approach is fair, clear, and practical.
Key Issues Under Review
Some of the specific issues the consultation is exploring include:
- How the £1 million allowance should be allocated if an individual sets up multiple trusts.
- Whether and how existing trusts will have access to the allowance, and how previously settled property will be treated.
- How to manage trusts that combine both qualifying and non-qualifying property.
- Clarification on interaction with other reliefs and existing inheritance tax rules.
- How to handle joint ownership situations, particularly for family businesses and farms.
Who Should Be Paying Attention?
These changes will particularly affect:
- Farmers and landowners using trusts to pass on agricultural land or property.
- Family business owners using trusts as part of their succession planning.
- Trustees and estate planners managing existing trusts with significant business or agricultural assets.
- Accountants, solicitors, and tax advisers supporting clients in long-term inheritance tax planning.
If you are considering creating a trust, or already have one in place holding qualifying business or agricultural property, these changes could affect how much inheritance tax is eventually payable on those assets.
What Should You Do Now?
If you have a trust holding agricultural or business property, or are considering using a trust as part of inheritance tax planning, now is the time to review your strategy.
Key steps to take:
✅ Review existing trust arrangements to understand how much qualifying property is held and how the new £1m cap might affect you.
✅ Consider timing: If you’re planning to transfer property into trust, it may be worth acting before the changes take effect.
✅ Seek professional advice to navigate the complexities of the transition period and ensure compliance with the new rules.
✅ Participate in the consultation to make sure your views and concerns are heard.
How Merranti Accounting Can Help
At Merranti Accounting, we are already working with clients to assess how these proposed changes could impact their inheritance tax and trust planning.
Our specialist team can help you:
- Review and assess your current trust and estate plans.
- Advise on the best way to structure future transfers to minimise inheritance tax liabilities.
- Prepare for the introduction of the £1m allowance, including reviewing potential relief eligibility.
- Respond to the consultation, ensuring your views are clearly expressed to HMRC.
Final Thoughts
This consultation represents a significant development in inheritance tax planning using trusts, particularly for agricultural and business property. Whether you are a farmer, landowner, business owner, or trustee, it’s essential to understand how these changes could affect you — and to have your say before the 23 April 2025 deadline.
If you’d like to discuss how this may impact you or need help submitting feedback, contact Merranti Accounting today for expert advice.
