Autumn Budget 2025: Extension of Schedule A1 Inheritance Tax “look‑through” to UK agricultural property

Background

Before 6 April 2017, non-domiciled individuals (as they were then known) or excluded property trusts which held UK situs assets through offshore companies were not subject to inheritance tax (IHT). The offshore company served as a ‘situs-blocker’. By virtue of being a non-UK situs asset, the offshore company qualified as excluded property, and was therefore outside the scope of UK IHT, despite its underlying assets comprising UK property.

However, with effect from 6 April 2017 the excluded property rules were amended to bring UK residential property owned indirectly by either non-domiciled individuals or excluded property trusts within the scope of IHT.  This was achieved by carving out certain types of assets, which directly or indirectly derived some or all of their value from a UK residential property interest, from the definition of ‘excluded property’ via a new Schedule A1 of the Inheritance Tax Act 1984.

The assets classified as ‘non-excluded property’ include shares in close companies owning UK residential property, loans used to fund the purchase of UK residential property, and collateral for such loans.

The April 2017 changes were deeply impactful.  The UK IHT ‘transparency’ which applied to UK residential ownership structures (coupled with potential annual tax on enveloped dwellings (ATED) charges) led to widespread “de-enveloping” i.e. moving UK residential properties out of offshore company structures and into direct ownership.

Incoming changes from 6 April 2026

On 26 November 2025, the Chancellor released her Autumn Budget 2025 which extends the Schedule A1 carve-out to UK agricultural property with effect from 6 April 2026.

The effect is that non-UK entities (i.e. companies and partnerships) are ‘looked through’ and are subject to the UK IHT to the extent that they hold underlying UK agricultural property. Therefore, individuals who are not long-term resident in the UK for IHT purposes, and excluded property trusts, will now be subject to UK IHT on their indirect interests in UK agricultural property held through an offshore company.

The Government states that this is part of their wider anti-avoidance measures to ensure equal treatment of long-term residents and overseas owners by closing a “loophole”. However, it is notable that although the IHT treatment of residential and agricultural property is now aligned between long-term residents and non-long term residents, UK commercial property is still treated as excluded property when held by non-long term residents and excluded property trusts through offshore companies.  It is unclear why this inconsistency remains.

Agricultural Property Relief (APR)

For offshore holdings caught by the new look through, APR may still be claimed on the attributable agricultural value if the APR conditions are met.  There are some important points to note though.

First, those familiar with APR will know that cottages, farm buildings and farmhouses, together with the land occupied with them, fall within the scope of APR if they are “character appropriate to the property”.  These final words have been the source of much caselaw, particularly around what constitutes a farmhouse.  They are, however, omitted from Schedule A1 meaning that the scope of “agricultural property” caught by Schedule A1 is wider than the property on which APR can be claimed.  Farmhouses and cottages would be within Schedule A1 in any event on account of being residential property, and therefore the slight difference in drafting may have limited impact in practice.  Additionally, and unsurprisingly, there is no “agricultural value” limit in the drafting of Schedule A1 – therefore the full market value of agricultural assets is within the scope of IHT, although APR is capped at their agricultural value.  This is consistent with the taxation of these assets in the ownership of long-term residents who are “exposed” on hope, development, or other value above an asset’s agricultural value.  This can be particularly significant in respect of large farmhouses in desirable locations, or on land which has potential planning / development potential.

APR can only apply to companies (i.e. in this case the offshore company) where certain conditions are met:

• The agricultural property must form part of the company’s assets such that part of the value of the shares can be attributed to the agricultural value of the agricultural property.  On a strict reading, this means that if agricultural property is held through an underlying subsidiary, the shares in the holding company would not qualify for APR.  HMRC is not understood to take this point though and the author has direct experience of APR being granted on assets held multiple layers down a corporate structure.
• The shares or securities give the transferor control of the company.  Control in the IHT legislation means more than 50% of the voting control.  This can often preclude APR being claimed on company shares where the company is held by two or more family members in equal shares.  This point requires careful consideration when reviewing structures in light of the new changes.  
• The company must either:
  • have occupied the agricultural property for the purposes of agriculture for two years prior to the IHT event.  Essentially this means that the company must have actively farmed (including through the use of a contractor) the land for two years; or
  • have owned the agricultural property for a period of seven years up until the IHT event and, throughout that period, the property must have been occupied by the company or, more usually, by someone else for the purposes of agriculture.  In other words, this condition is satisfied if the company owned the land for seven years and let it to another individual or company to be farmed throughout that period.
    
    In this context occupation by the person who controls the company shall be deemed as occupation by the company.

• Assuming the above conditions have been met, it is necessary to consider the rate of APR which will apply to the company shares.  Where the company has let the land on, broadly speaking, a pre-1995 Agricultural Holdings Act tenancy (i.e. one which gives security of tenure to the tenant) the rate of APR is 50% on the agricultural value of the agricultural property.
• In all other cases (i.e. where the agricultural property is farmed by the company, or let on a more modern farm business tenancy) the position is more complex.  From 6 April 2026 (when the extension to Schedule A1 comes into effect), a £2.5 million allowance will potentially be available on the combined value of property qualifying for APR and Business Property Relief (BPR) at 100%.  Above this, the relief rate will be 50%.  
• For non-long term residents holding agricultural property through offshore companies, any unused £2.5 million 100% allowance will be transferable between spouses/civil partners, including where the first death occurred before 6 April 2026.  These individuals will also have their nil rate band available, to the extent not used on other UK assets such as residential properties.  This regime will also apply to any trusts where the non-long term resident is treated as the owner for IHT purposes.  
• For excluded property trusts the position is more complex.  Trusts in existence on 29 October 2024 which held assets which, on that date, would have qualified for 100% APR or BPR had they have been relevant property (ignoring any ownership or occupation conditions) will benefit from a £2.5 million 100% allowance.   There are also more generous grandfathering provisions which will apply until the trust’s first 10 year anniversary after 6 April 2026.  Moreover, the first 10 year charge following 6 April 2026 should be reduced, although the legislation on this point could be more clearly worded in the context of Sch A1 assets, but this seems to be the most logical construction.  
• The original reforms to APR and BPR were announced in the 2024 Budget and draft legislation released in July 2025.  The extension of Schedule A1 was announced in the 2025 Budget and draft legislation released shortly afterwards.  It appears that there may be some drafting oversights in how the two pieces of legislation fit together, particularly with regards trusts settled between 30 October 2024 and 6 April 2026.  The availability of the £2.5 million 100% allowance for post-2024 Budget trusts requires very careful consideration and, on the current drafting, may be precluded in certain circumstances.
• Where IHT is payable on offshore companies as a result of the extension to Schedule A1, it can be paid in 10 annual instalments interest-free.  Careful thought should be given as to how this charge will be funded, particularly if funds have to be extracted from underlying companies and moved to trust-level.

Practical steps 

The legislative changes coming into force in April 2026 are technically complex and will have a wide-reaching impact for offshore structures holding agriculture assets.  It will be important for excluded property trustees and non-long term residents which indirectly own UK agricultural property to understand their exposure to IHT from 6 April 2026.