In the 2024 Autumn Budget, the UK government announced changes to agricultural property relief (APR), business property relief (BPR) and unused pension funds.
STEP, the global membership body for inheritance advisors, recently submitted two consultation responses to the government’s draft Finance Bill 2025-26 clauses outlining these reforms.
In both responses, STEP is clear: the government’s proposed policies risk adding complexity to succession planning and increasing the burden on personal representatives, small farmers and business owners. STEP’s UK Technical Committee has put forward measures that would alleviate some of these difficulties.
Application of the new APR and BPR allowance
The new £1 million allowance for agricultural and business property relief is currently not set to be transferable between spouses and civil partners, unlike the nil rate band. STEP argues that the allowance should be transferable, as is the case with the nil rate band. This will save small farmers and family businesses from being burdened with unnecessarily complex financial planning. Alternatively, the allowance could be raised so as to exempt smaller farms and businesses entirely.
Most farmhouses with barns and acres of land to farm on will be valued at £1 million or more. It is unrealistic to think that the average farmer will not be financially impacted by this reform.
The rules around how this new allowance will be allocated is still unclear. STEP argues that personal representatives should be given discretion in how the allowance is allocated across assets and beneficiaries.
Unused pension funds
Unused pension funds and death benefits are to be subject to income tax from April 2027. STEP has joined with other professional bodies, including the Chartered Institute of Taxation and the Law Society, to emphasise how current proposals place significant unfair pressures on personal representatives. All of these bodies have argued for proposals that would go some way towards alleviating these burdens.
One key proposal we have made the case for is that pension funds should keep 50% of a pension until they receive confirmation of the inheritance tax liability to be paid and/or that the beneficiary is exempt (as a spouse, for instance).
Other proposals include a ten-year instalment option to pay any tax due and a statutory presumption in favour of the nil rate band covering the free estate first.
Across the board, the government’s proposals have led to a lot of uncertainty and anxiety among practitioners and their clients. Members of the UK Technical Committee took the opportunity to express these concerns to peers on the House of Lords Finance Bill Sub-Committee at a hearing in October.
Through all of this engagement, we hope to reduce some of these worries by stressing the need for the proposals to be clear and fair.
Kishan Rana, Government Affairs Executive, STEP
