Inheritance tax transitional gifting rule could help older farmers

30 Oct 2025

The government should consider putting in place a transitional rule to enable older farmers and other business owners to gift assets to a younger generation free of inheritance tax before the government’s changes take effect in April, says the Chartered Institute of Taxation (CIOT).

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In a submission to a House of Lords inquiry1, CIOT observes that current rules incentivise farmers and business owners to hold on to their farms until their deaths, but the proposed changes reverse the incentive, making lifetime giving the best approach. However, for older farmers and business owners there is a substantial risk that they will die within seven years of a lifetime gift – but after April 2026 - with the result that the gift will be ineffective for inheritance tax purposes.

The Institute points out that this creates a cliff edge at 6 April 2026: “This has led to some expressing concerns around taxpayers taking their own lives in order to avoid the new rules. For example, if a taxpayer dies in March 2026 owning fully relievable assets, those assets would pass 100% IHT free. However, if they died a month later, the new rules would apply.” The Institute adds that tax practitioners have reported that clients are suffering from increased anxiety and depression on how to hand on their family business intact.2

The Institute suggests in its submission that this risk could be mitigated by amending the legislation so that any gifts made between 30 October 2024 and 5 April 2026 of relievable assets would continue to benefit from the old rules even if the person died within seven years. If necessary, the amendment could be restricted to those over a certain age or in ill health.

Commenting, CIOT Vice President John Barnett said:

“We are concerned that bringing in changes to agricultural and business reliefs with a cliff-edge date of 6 April 2026 is leading to great anxiety among older clients as they are unlikely to survive seven years and therefore are unlikely to see making gifts as a solution.

“We think that there is a straightforward and relatively low-cost transitional rule that could address this concern: allowing gifts made between now and April to continue to qualify for the 100% relief currently available.  While this is not a complete solution to the problem – there may be some for whom making a gift is impractical or impossible if they have lost capacity – it should significantly reduce the risk as it gives a viable and straightforward alternative.”

Non–transferability of the BPR/APR allowance

In the submission CIOT also queries the decision not to permit the proposed £1m BPR/APR allowance to be transferable between spouses as the nil-rate band and residential nil rate band are. It suggests this will lead to some harsh outcomes, especially for those who fail to take expert advice on how to structure their finances.

The Institute puts forward a scenario where a husband dies with £2m worth of 100% relievable property (a farm or other business) and leaves his entire estate to his wife. The wife then dies leaving her entire estate to their son. On the wife’s death, only £1m of the property qualifies for 100% relief; the husband’s 100% relief of £1m allowance has effectively been wasted.

If the couple had set up a £1m discretionary will trust both allowances could have been used in full. This sort of tax planning is entirely legal and was widely used before the introduction of the transferable nil rate band in 2007. Statements by ministers imply that they expect those affected to take this kind of action. However, couples who through disorganisation or lack of financial means do not take professional advice and structure their affairs in this complex way will lose out, as will widows and widowers for whom it is too late to take this action.

John Barnett commented:

“The proposals as they stand favour those who can afford professional advice during their lifetimes and disadvantage those who cannot afford such advice. They create complexity and additional cost.

“The draft legislation appears to disadvantage married couples where one has already died leaving everything to the other in the belief that full relief would be available on the second death. Is there a case, at least here, for allowing a double allowance where the surviving spouse is over a certain age? That would be consistent with the examples frequently put by government ministers quoting £3m of value before IHT bites – on the assumption that the business or farm is owned by those who are currently married, rather than by a widow, widower or unmarried person.”

Notes for editors:

  1. CIOT’s concerns are set out in more detail in the following documents – 
    Representation to HMRC on draft Finance Bill legislation on APR/BPR  
    Representation to House of Lords Finance Bill Sub-Committee on inheritance tax changes (sections 11-18 cover APR/BPR changes)
    Information on the House of Lords inquiry, including transcripts of hearings and a large amount of written evidence, can be found at Draft Finance Bill 2025–26 - Committees - UK Parliament
  2. Those anxious about the impact of this policy on them are encouraged to speak to someone -
  1. Samaritans' Media Guidelines may be relevant in reporting of this issue