Transfers into Trust: Consider position before April 2026

We are continuing to encourage businesses and agricultural property owners to talk with their professional advisors to review the potential impact of the upcoming changes to Agricultural Property Relief (APR) and Business Property Relief (BPR), set to come in from April 2026. If trusts are in play, implementing a plan before April 2026 may be key.

In my last article I expressed hope the rules may be deferred or relaxed, however, as draft legislation was published in July 2025, that hope is dwindling. Many clients are looking at all options to safeguard the succession of their businesses and assets without the burden of 20% Inheritance Tax (IHT) on valuable estate assets for deaths post April 2026.

Trusts are routinely considered, particularly for their added asset protection and the ability of the settlor to retain control as trustee, despite being unable to continue to benefit from the settled property.

Importantly, up until 5 April 2026, there is an opportunity to transfer APR/BPR relievable assets/business interests into trust up to an unlimited value receiving full IHT relief on the way into trust.

From 6 April 2026, transfers into trust involving APR/BPR eligible property will be subject to a £1m cap for 100% relief. Where APR or BPR is claimed, any value settled in excess of this threshold will incur an entry charge at an effective rate of 10%.

For new trusts, this is likely to be a long-term plan as, once assets are transferred in, they are subject to the £1m cap. This means any subsequent capital distributions exiting the trust will generate a tax liability.

Every ten years, there would be an IHT charge for settled assets of up to 3% on relievable assets and up to 6% on chargeable asset values. This has the benefit of providing certainty for planning over time, rather than potential exposure to higher rates of 20% or 40% on death.

IHT related to APR/BPR eligible assets can also be paid over 10 annual instalments, interest free. This should be carefully considered when planning for how future IHT will be financed.

The ability to settle valuable estate assets now, acknowledging that IHT charges will arise periodically every 10 years, may be more affordable than the potential borrowing to cover 20% IHT on death, particularly where APR/BPR applies.

Trusts can be a solution perhaps where individuals do not have appropriate successors during their lifetimes.

Trusts are also beneficial for CGT holdover where an asset, such as a rental property, would not be eligible for CGT holdover if made as an outright gift.

There are of course trade-offs to be made, including:

• The trust does not inherit the qualifying holding period of the settlor. Therefore, needing to hold BPR assets for a minimum of 2 years and let APR assets for a minimum of 7 years before qualifying for any relief.
• Like gifts to individuals, should the settlor die within 7 years of the trust set up there is potential clawback of the reliefs given at the time the trust was created, with taper relief after 3 years of gifting. Life insurance should be considered to mitigate such risk.
• The settlor forfeits the capital gains tax (CGT) tax-free uplift to probate value when they settle a trust, instead most likely claiming CGT holdover relief to defer any gains until sale by the trust.
• The trust may need to generate income to pay its future IHT charges. Trust income is taxed annually at 45%, or 39.35% for dividend income. Income tax planning needs considering.
• The settlor and their spouse need to be excluded from benefiting from the trust.
• Other taxes need to be considered depending on the assets involved, including Stamp Duty Land Tax (SDLT) and VAT.

If transfers into trust are being considered before April 2026 the window of opportunity to plan and execute is tight. Professional valuation will be required, and specific tax advice should be taken based on individual circumstances as the rules are complicated.

Where the IHT plan includes the involvement of a new trust, implementing plans before April 2026 is strongly advised.

Please get in touch with your usual contact or with me if you would like to discuss further.