Geographical restrictions on inheritance tax reliefs

Neil McGinn
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A number of important reliefs from inheritance tax are soon to be restricted for those owning land outside the UK.

For landowners across the country, both agricultural property relief (APR) and woodlands relief have played a crucial role in protecting their estates from exposure to inheritance tax (IHT). These reliefs have been particularly important for landowners who do not farm their agricultural land themselves and thus do not qualify for business property relief (BPR).

Historically the scope of these reliefs has extended beyond the UK to include property located in the European Economic Area, the Channel Islands and the Isle of Man. The 2023 Spring Budget however announced plans to restrict these reliefs solely to property located in the UK.

These changes will be of concern to all landowners within the scope of IHT who currently own land outside the UK, including in particular those who own land in Ireland. Despite recommendations made by Chartered Accountants Ireland to include Ireland within the scope of these reliefs on the basis that these changes will disproportionately affect taxpayers in Northern Ireland owning land across the island, HM Treasury has confirmed that no changes will be made to the proposed restrictions in relation to land in Ireland.

These restrictions are set to take effect from 6 April 2024. In addition to affecting estates where the death falls after this date, lifetime transfers of land made less than seven years before 6 April 2024 are also at risk. If, on or after 6 April 2024, the transferor fails to survive seven years from the date of the gift, the IHT position will be retested under the APR “clawback” provisions and IHT may arise as a consequence of the loss of relief.

It is worth noting that these geographical restrictions do not apply to BPR, meaning that farms and commercially occupied woodlands located outside the UK might not suffer from the loss of APR and/or woodlands relief provided the relevant conditions are met for BPR to apply. 

Landowners who have been reliant on APR and/or woodlands relief in respect of property abroad should review their affairs and consider their options. Likewise, trustees holding these assets should consider whether they should be distributed before 6 April 2024 when the benefit of APR will be lost.