The new rules around inheritance tax (IHT) risk “dry” tax bills and future disputes for farmers and private business owners, Irwin Mitchell has warned.

The law firm has urged families to review their wills and succession documents ahead of the impending changes in April, warning that some families could be left with a tax bill without receiving either the asset or the sale proceeds – and a heightened risk of future disputes between surviving owners and family members.

From 6 April, 100% relief for agricultural property relief (APR) and business property relief (BPR) will be capped at a combined value of £2.5m per estate, with qualifying value above that level receiving 50% relief.

While instalments over 10 years will be available on any qualifying APR or BPR property, any IHT liability will still sit with the estate – even if a pre existing agreement passes the business to a co owner and the family receives no cash or shares.

Irwin Mitchell partner, James Laycock, a specialist in resolving disputes around wills, estates and trusts, said: “Many farming and business families still assume the enterprise will pass tax free but under the new cap, that won’t always be true.

“Where shareholder or partnership agreements transfer the business to a co owner on death, the estate may carry the IHT bill even though the family doesn’t inherit the asset. That’s the classic ‘dry’ tax scenario - risks are avoidable with the right planning.

“Where a will leaves a farming business to one part of the family and other cash assets to the non-farming family, the non-farmers could end up paying the IHT, reducing or extinguishing their part of the estate.

“This might give rise to an increase in will disputes in the coming years brought by disappointed beneficiaries who find themselves with a much smaller inheritance than expected from the deceased.”

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