I’ve been looking into the forthcoming changes to APR/BPR with the help of online resources and input from colleagues. The below is a collective position from replies/discussions with those sources.
It has been confirmed that the £1 million relief allowance will not be transferable between spouses or civil partners. This increases the importance of making full use of the allowance on the first death. However, draft clause 4 of the Finance Bill 2026 (which inserts new section 124D(7) of the Inheritance Tax Act 1984) provides for automatic apportionment of the £1 million relief across all eligible assets at death, based on the proportionate value of those assets.
There seem to be two possible interpretations here:
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The narrow interpretation (automatic apportionment applies across all relievable assets, with no ability to direct or elect how the £1 million relief is used): In the absence of the ability for the personal representatives to choose or elect how the £1m allowance is allocated across the estate assets, it doesn’t appear to be possible to avoid automatic apportionment between relievable property passing to exempt and non-exempt beneficiaries, nor to provide for the allowance to be allocated specifically to assets comprised in a particular gift. This means that there may be no way of avoiding tax inefficient overlap between exemptions and reliefs or banking the available allowance efficiently on the first death. As the provisions are currently drafted, the automatic apportionment means that drafting a will clause (whether it is a gift to a discretionary trust or to a specific beneficiary) framed so that only 100% relievable property is comprised in the gift would not work because, if the 100% relievable property exceeds the available £1m allowance at death, the allowance would be spread across all relievable assets in the estate so that it is not possible to draft the clause in a way that enables the 100% rate to attach to the assets passing under the terms of that specific gift. As a holding position, we might need to use a discretionary trust of business or agricultural property.
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The broader interpretation (the apportionment only applies to chargeable transfers, not exempt transfers (e.g. to spouses)): This view follows from the structure of section 124D:
a) Section 124D(1) refers to 100% relief being available in respect of a chargeable transfer.
b) Section 124D(2) states that 100% relief applies to chargeable transfers (“the relevant transfer”).
c) Section 124D(6) states that a relevant transfer is a transfer on death.
d) Section 124D(7) only apportions the 100% allowance between chargeable transfers and so none of the allowance would be given to an exempt transfer such as a transfer to a spouse (because an exempt transfer is not a chargeable transfer – section 2(1) IHT Act 1984)
So, section 124D(7) only apportions the 100% allowance between chargeable transfers and so none of the allowance would be given to an exempt transfer such as a transfer to a spouse (because an exempt transfer is not a chargeable transfer – section 2(1) IHT Act 1984).
However, Section 124D(6)(a) of the IHTA 1984 (to be inserted by draft clause 4 of the Finance Bill 2026) says “the relevant transfer is the transfer made under section 4 (transfers on death)”. Section 4 captures all transfers of value on death whether they are exempt or chargeable. When looking at section 124D(7), the provision is framed around the value of relevant business property and the agricultural value of agricultural property rather than whether it is comprised in a chargeable transfer or an exempt transfer. Therefore, although the above analysis of the draft legislation concerning chargeable transfers and exempt transfers makes sense and is certainly arguable, the drafting appears to be sufficiently loose to capture exempt transfers made on death as well as chargeable transfers.
I prefer the broader interpretation.
The planning options appear to be:
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Make a lifetime gift to the next generation to use the £1million allowance. The Will would then leave relievable property to the spouse by way of a life interest so that the surviving spouse can use the £1million allowance also. The spouse inherits the occupation and ownership history of the deceased spouse.
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Make a lifetime gift to the spouse to ensure that he or she owns relievable property that can pass under his or her Will. In this situation, it seems that the successive transfer provisions should mean that the relief which the transferor had built up transfers to the spouse provided the subsequent transfer is on death.
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There is the issue of the residence nil rate band which would be reduced, or lost entirely, if the Estate of the 1st to die is in excess of £2million. So much for HMG stating £3m before any tax is paid!
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Although quite inflexible and not suitable for many farms and businesses because of the age restrictions that apply to this type of trust, is an 18 to 25 trust for children in a will. This can enable a £1m allowance to apply to each child’s share that can be set against exit charges when shares of the fund are distributed.
Does anyone have any comments?