Despite months of unrest and campaigning – see our articles here and here – on 21 July 2025, the government announced that it was publishing draft legislation to reform agricultural property relief and business property relief from inheritance tax from 6 April 2026 “to make them fairer and more sustainable. In addition to existing nil-rate bands and exemptions, the current 100% rates of relief will continue for the first £1 million of combined agricultural and business property to help protect family businesses and farms. The rate of relief will be 50% thereafter…” That announcement was accompanied by an HMRC policy paper and the publication of the draft legislation.
Since 1992, the rate of inheritance tax (IHT) relief on qualifying agricultural property and relevant business assets has been 100% with the effect that no IHT has been payable regardless of the value of those assets within a deceased’s estate. Valuations have been required for probate purposes and for re-basing the value of the assets transferred by inheritance, which has been relevant for the purposes of calculating capital gains tax on subsequent sales, but have been regarded by some as not much more than an administrative formality. That is clearly all about to change.
It is important to remember that a valuation is a valuer’s opinion of the “the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s-length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.” That definition of market value is contained in the Royal Institution of Chartered Surveyor (RICS) Valuation – Global Standards, otherwise known as the Red Book. A Red Book valuation is required for all formal and regulatory purposes, including for lending and borrowing, purchases and sales by pension funds and other financial institutions, financial reporting and for taxation purposes. The Red Book was first published in 1976, and is updated regularly to reflect market changes and developments. It is recognised globally as one of the most rigorous sets of standards for valuation. The current version of the Red Book took effect from 31 January 2025.
The RICS operates a risk monitoring and quality assurance programme which checks compliance with the RICS Red Book and applies to all RICS registered valuers. Details of the RICS registered valuer scheme can be viewed here and here. It also enables clients and the general public to check if an RICS member is a registered valuer. Under RICS rules of conduct, only RICS registered valuers can provide Red Book valuations.
For IHT purposes, the relevant value is the market value as at the date of death. However, the Inheritance Tax Act 1984 contains its own definition of market value which is “the value at any time of any property shall for the purposes of this Act be the price which the property might reasonably be expected to fetch if sold in the open market at that time; but that price shall not be assumed to be reduced on the ground that the whole property is to be placed on the market at one and the same time.”
Both agricultural property (which includes land, buildings and a house which is of a “character appropriate” to the holding and occupied by the farmer) and farming assets that are used in the operation of the farming business can be relevant business assets. That is why the government has capped the 100% relief from IHT at £1 million of the combined value of both. In cases where all the assets are relevant business assets, the Inheritance Tax Act 1984 defines the value of the business or a share of a business as its net value which is “the value of the assets used in the business (including goodwill) reduced by the aggregate amount of any liabilities incurred for the purposes of the business.” When valuing a share of a business, the Act says that “in ascertaining the net value of an interest in a business, no regard shall be had to assets or liabilities other than those by reference to which the net value of the entire business would fall to be ascertained.” In the case of a farming partnership, that provision therefore excludes assets that are owned solely by one partner and not by the partnership.
It is often said that valuation is an art and not a science and opinions of value can differ significantly between valuers. It is generally understood that there is an acceptable range of valuation opinion between which the market value of any asset will fall on any valuation date. It is further understood that discounts from market value may be made where there is joint ownership and ownership shares are being valued with a higher level of discount where there is multiple ownership. These and all other relevant factors that may influence value should be referred to and reflected in a Red Book valuation.
Since the October 2024 budget, accountants, solicitors and other advisers have been offering IHT reviews and tax planning advice to mitigate potential IHT liability. In those circumstances, it is important to have indicative valuations to inform decision making and it is prudent for those to be provided by an RICS registered valuer so that, as and when necessary, the same valuer can provide whatever Red Book valuations may be required.
