Inheritance tax is a levy paid on assets over a certain value after someone has died
New inheritance tax rules for UK farms and family businesses come into force from today.
Inheritance tax is a levy paid on assets over a certain value after someone has died.
It normally has to be paid when the value of someone’s estate is worth more than £325,000 – however, it is possible to pass on much more than this tax-free if you have a spouse and children.
The changes to inheritance tax today relate to agricultural and business property reliefs, with a new £2.5million cap before inheritance tax is due.
For assets above this, only 50% tax relief will be applied. The standard rate of inheritance tax is 40%, so you would pay 20% on assets above this amount.
The new cap was originally going to be £1million but Labour announced it would increase it to £2.5million following protests around the UK, with farmers arguing that it threatened the viability of family farms.
Rowan Harding DipFPS, a financial planner at Path Financial, said: “Most people would think, ‘If you’ve got £2.5m in agricultural or business property, then you’re probably doing pretty well for yourself’.
“So it’s perhaps going to be a very small portion of people impacted by this, but you will get people who are in the farming industry being very uncomfortable and upset.”
Although changes are “aimed at those people who have a higher level of assets, the problem is, a lot of assets around agriculture are land-related, and you need land to farm.”
What is inheritance tax?
Inheritance tax is sometimes due on the “estate” of someone that has died – this includes property, possessions and money. From April 2027, this will also include pensions.
Inheritance tax applies to wealth that was transferred within seven years of someone dying. It is due if the value of your estate is above £325,000 – although as we’ve mentioned above, this can a lot higher depending on who you leave your wealth to.
For example, there is no inheritance tax to pay when an estate is left to your spouse or civil partner. If you give away your home to your children – this includes adopted, foster or stepchildren, or your grandchildren – then the inheritance tax threshold can increase to £500,000.
This includes the basic £325,000 allowance, plus an additional £175,000. If you are married or in a civil partnership, any inheritance tax allowance that isn’t used can be passed on when someone dies.
This means a couple can potentially pass on as much as £1million without their estate being subject to inheritance tax. If your estate is subject to inheritance tax, then the standard rate is 40%.
This is to 36% if you leave at least 10% of the net value after any deductions to a charity in your will.
