Azets Aberdeen, a leading provider of financial
and strategic advisory services, is providing advice to business owners and
farmers ‘unfairly punished’ by the inheritance tax (IHT) changes following the
autumn budget announcement.
From April 2026, proposed restrictions to both
Business Property Relief (BPR) and Agricultural Property Relief (APR) will come
into effect, while from 2027, pension funds will also fall under the IHT net.
Graeme Cran, associate director, private client, said: “Roy Jenkins, who served as chancellor for Harold Wilson from
1967 to 1970, famously remarked, 'Inheritance
Tax is a voluntary levy paid by those who distrust their heirs more than they
dislike the Inland Revenue.'
"At its simplest, Jenkins’ observation
is accurate – by gifting assets during your lifetime and utilising available
tax reliefs, it is possible to avoid Inheritance Tax (IHT) entirely. However,
the reality for business owners and farmers is now starkly different following
the recent changes announced by Rachel Reeves in last month’s Budget – they are
being unfairly punished.
“These measures will undoubtedly reshape estate
planning for business owners and farmers alike. Proactive and effective tax
planning remains key to minimising IHT liability, but for many, the notion of
IHT as a 'voluntary levy' no longer holds true.”
A changing landscape for pensions
and businesses
The UK’s tax system has long incentivised
contributions to pensions. For years, individuals have benefited from tax-free
income and growth within their pension funds, often leading to funds exceeding
personal financial needs. Previously, pensions were sheltered from IHT,
encouraging individuals to use other assets first.
Cran continued: “With pensions now set to face
IHT, the situation becomes far more complex. Unlike other assets, pensions
cannot be gifted, and any withdrawals are subject to income tax. For many, this
creates a catch-22: how can they preserve the wealth accumulated in their
pensions while mitigating tax exposure?
“Similarly, farmers and shareholders have
historically been advised to retain their businesses until death to pass them
on free of IHT and capital gains tax. With the proposed changes to APR and BPR
from April 2026, this strategy may no longer apply. For elderly individuals,
pivoting late in life to gift assets – with the requirement to survive seven
years – poses significant and unforeseen risks.”
“The sweeping changes to IHT rules have caused considerable
frustration, particularly among those who have meticulously planned their
estates in accordance with longstanding legislation. For some, the new rules
present no-win scenarios – and those with large pension funds are likely to be
among the hardest hit."
Planning for the future
Cran added: “While early and proactive planning
remains the best way to manage IHT exposure, the options for some may now be
more limited. As a result, difficult decisions must be made swiftly to mitigate
the impact of these changes. For many, Jenkins’ words may no longer ring true:
Inheritance Tax is becoming less 'voluntary' for those blindsided by recent
legislative shifts.”
Azets Aberdeen is committed to helping
businesses navigate complex market conditions and achieve sustainable growth.