Government launches consultation on IHT reliefs for trusts

The UK government has launched a technical consultation on the proposed changes to agricultural and business property reliefs for trusts. 

The consultation, which is open until 23 April 2025, invites feedback from stakeholders regarding the application of charges to property held in trusts.

The reforms, which are due to take effect from April 2026, include a significant change that will see the introduction of a 20% inheritance tax (IHT) on agricultural and business assets exceeding £1m, as announced in the Autumn Budget.

See also: What to consider in light of planned Budget IHT relief cut

NFU president Tom Bradshaw said it was “incredibly disappointing” that the government had chosen to only focus on one part of the planned IHT changes.

“From Labour’s own tax specialists to the OBR [Office for Budget Responsibility] and all of the UK’s major supermarkets, no one thinks this policy is a good idea,” he added. 

“The government’s decision not to extend this consultation out to seek views on the whole of the change in policy shows that they are happy to blindly walk into a future that could hugely impact our family farms and national food security.”

Treasury ‘unlikey to change’

Stuart Maggs, head of tax at Howes Percival LLP, said despite industry calls for a review, it seems the Treasury views these changes as fixed for the current government’s term and unlikely to change.

Mr Maggs said the proposals suggested there would be an ongoing benefit to creating trusts in the future, and they would be a useful part of lifetime planning every seven years, as well as will planning for business owners.

But he added: “There are a number of pitfalls in their use, and they should only be created with careful professional advice as to the implications. 

“If you seek to give funds away and take too much income from the business in the future, you risk the gift effectively being ignored for inheritance tax purposes.”

This consultation focuses not on individuals, but on how these new rules will affect property settled into trusts, with a particular emphasis on the £1m allowance for property qualifying for full agricultural property relief (APR) or business property relief (BPR). 

It suggests that trusts in existence before last October’s Budget will benefit from 100% relief on the first £1m of qualifying property, and 50% thereafter. New trusts will have the £1m band split between them in the order they are set up.

‘Anti-fragmentation rule’

An unexpected part of the consultation canvasses views on an “anti-fragmentation” rule, which seeks to prevent individuals from reducing their overall IHT liabilities by settling property into multiple trusts. 

This had not previously been suggested and could affect existing arrangements, meaning property owned by the person creating the trust could be valued as if they still owned the trust’s assets, even though there are no circumstances in which they can benefit from them.

Other sections of the consultation include how the changes will affect transfers to and from trusts after April 2026, the introduction of the anti-fragmentation rule, and the application of these reforms across trusts with specialised tax treatment.

CLA concerns

The Country Land and Business Association (CLA) welcomed the clarity around the ability to pay inheritance tax in interest-free instalments, but raised concerns about the additional complexity that the proposals bring.

“Trusts are not there to avoid paying tax, they are useful to help families manage their finances,” said Louise Speke, CLA chief tax adviser.

“They have been part of the English legal system for centuries, and are used for a myriad of reasons – rarely to do with tax – to help families provide ongoing management of farmland and businesses.”

Responses can be submitted via an online form or by email to aprbpr.consult@hmrc.gov.uk.

After the consultation period, the government will release a response document and continue the process with a technical consultation on draft legislation later in the year.