Speculation has been rife as to the changes the Chancellor might make in the Autumn Budget. We all expected something big on Inheritance Tax for park owners – and we were not disappointed.
Headlines
For holiday and residential park owners the headline changes, which we will examine further below, are that:
- the protection offered from Inheritance Tax by Business Relief and Agricultural Relief has been reduced,
- inherited pensions and death benefits payable from a pension to a person’s estate are being brought within the scope of Inheritance Tax,
- no changes are being made to the basic Inheritance Tax allowances.
Changes to the Business Property and Agricultural Property rules
Business Relief from Inheritance Tax is often a hard-earned relief for park owners. Significant changes have been made to these elements of the Inheritance Tax regime.
Until now, when Business Relief is secured, it has protected either 100% or 50% of the value of a business from a charge to Inheritance Tax. The new rules will:
- cap the availability of Business Relief and Agricultural Relief to the first £1,000,000 of the combined value of those assets which would previously have attracted 100% relief
- restrict the rate of relief to 50% on the value of agricultural and business assets above the £1,000,000 threshold.
At present the current rules for parks businesses are:
- full relief, at the 100% rate, has been available for businesses run by an individual as a sole trader, for partnership interests, and for unquoted shares in a qualifying business.
- relief at the reduced rate of 50% has been available on land, buildings, plants or machinery which is owned by an individual and used mainly by or for their business.
When Business Relief was secured at 100%, the full value of the park business could pass to your successors without any charge to Inheritance Tax arising.
A similar relief has been available for owners of farmed land. Farmers have been able to claim 100% relief from Inheritance Tax on the agricultural value of farms owned and farmed in hand for at least two years or on land owned by an individual for at least seven years where it has been farmed by others. Agricultural Relief at 50% was also available in certain, limited, circumstances.
For land-owning businesses, such as holiday and residential parks, these reliefs have worked hand in glove so that, where the circumstances allow, both reliefs are claimed to give maximum protection to the park owner. Often, using Business Relief, Agricultural Relief or a combination of both, alongside an individual’s personal Inheritance Tax-free allowances, has allowed park owners to pass their business on to the next generation on death, free of any Inheritance Tax charge.
How will the Inheritance Tax changes impact my parks business?
From the 6 April 2026, only the first £1,000,000 of assets which, under the current rules, qualify for 100% Business or Agricultural relief from Inheritance Tax will continue to be fully protected from a charge to Inheritance Tax. Any lifetime transfers of agricultural or business property made after 30 October 2024, where the donor dies after 6 April 2026 and within seven years of making the gift, will also be subject to this cap.
Business and agricultural assets over the £1,000,000 threshold will be charged to Inheritance Tax at half the usual rate of tax. This places an effective rate of 20% Inheritance Tax on business and agricultural assets held by an individual when their combined value is worth more than the £1,000,000 threshold.
Business or agricultural assets which have, until now, qualified for relief at the 50% rate will continue to receive that rate of relief. Those assets will not use the £1,000,000 threshold for fully relievable businesses or agricultural assets.
The £1,000,000 business and agricultural property threshold will not be transferable between spouses. Consequently, it may now be unhelpful to pass business or agricultural assets to a surviving spouse or civil partner on death as this will place the full value of a park business or farmed land into the survivor’s estate. The survivor will then only have access to a single £1,000,000 threshold on their death to protect the value of the park or farmed land on to the next generation.
Much of the detail surrounding the application of the relief is not yet available. However, over the coming weeks, park owners who are married or civil partners should seek guidance from their trusted legal advisors to consider the options available to allow them to access to the full £1,000,000 allowance on both deaths.
Once the new tax rules have been confirmed, consideration should also be given to lifetime gifts and your business structure should be reviewed to ensure you minimise the impact of the changes on your business.
Other Business Relief Changes: AIM shares
Until now, it has been the case that investments in the Alternative Investment Market, and similar investments, attracted Business Relief at a rate of 100% once they had been held by an individual for two years. From 6th April 2026 such holdings will now be subject to 50% relief from Inheritance Tax.
Pensions and Death Benefits
Inherited pensions and death benefits payable from a pension into a person’s estate will also be subject to a charge for Inheritance Tax from 6 April 2027.
Previously, unused pension funds were left out of account for Inheritance Tax purposes if they were not paid into a deceased person’s estate. This enabled families to pass significant value down the generations without a charge to Inheritance Tax arising.
Tax-free Allowance and Residence Allowance Unchanged
Contrary to some of the speculation pre-budget, Inheritance Tax basics remain unchanged. No immediate changes have been announced in relation to personal allowances from Inheritance Tax other than an extension to the freeze of the tax-free allowance until 2030.
This means individuals will still have access to their personal Inheritance Tax allowance of £325,000 and any unused allowance on death can remains available for transfer to a surviving spouse or civil partner.
A top-up allowance, called the Residence Allowance, is also unchanged and can be available in certain circumstances for those who leave their home to their descendants. As before, care should be taken with the Residence Allowance as its availability can be reduced or extinguished by the terms of your Will or the value of your estate on death. If available, the Residence Allowance is £175,000 for each individual. The Residence Allowance can also be transferred between spouses or civil partners on death if it is not used on the first death.
How can Tozers help?
The detailed legal rules surrounding these changes will not be available in full until later this year, or even 2025. Advisors’ understanding of the implications of these proposed changes will develop over time and as the government releases further guidance or draft legislation. Initial steps should be taken now, however, to understand the likely implications of these changes and steps which might be taken now to protect your position.
The Tozers Succession Team are keeping on top of the changes as they are released and are assessing the impact in the context of our parks clients. If you would like support or have any queries on how this will impact you and your parks business, please get in touch with one of our experts.
