Upcoming inheritance tax changes: What they mean for you

Significant inheritance tax changes are on the way. Following announcements in the Autumn Budget, new rules due to take effect from April 2026 and April 2027 will reshape how business assets, agricultural land, pensions, and AIM shares are treated for inheritance tax (IHT) purposes. These changes to inheritance tax reliefs could lead to larger tax bills for many estates, particularly those involving family businesses or farms.

Business owners, farmers, and individuals with substantial pension savings or AIM investments should begin reviewing their estate plans now to prepare for the impact of these new inheritance tax rules.

Understanding the upcoming inheritance tax changes

The current IHT framework has remained broadly the same since 2007, allowing certain valuable reliefs that can significantly reduce tax exposure. These include:

• Business Property Relief (BPR) – offering up to 100% relief on qualifying business interests held for more than two years.
• Agricultural Property Relief (APR) – offering up to 100% relief on eligible farmland and agricultural property.

These reliefs have historically enabled wealth to be passed down through generations without triggering large tax liabilities. However, from 6 April 2026, this landscape will change dramatically.

£1 million cap on business and agricultural reliefs

A key element of the upcoming inheritance tax changes is the introduction of a £1 million cap on BPR and APR.

• Only the first £1 million worth of qualifying business and/or agricultural assets will be eligible for 100% relief.
• Any value above this threshold will qualify for only 50% relief, leading to an effective 20% inheritance tax charge on the remaining value.
• This represents a major reduction from the current regime, which has no upper limit for assets meeting the qualifying conditions.

The cap applies to lifetime gifts and transfers on death

The new cap will apply to both lifetime transfers and transfers on death. Whether business or agricultural assets are gifted during your lifetime or passed through your estate, the total value of qualifying assets will count towards the same £1 million threshold.

This will affect individuals who use lifetime gifting as part of their inheritance tax planning strategies, particularly when transferring assets into trusts or directly to family members.

Existing 50% reliefs remain unchanged

Some assets already attract only 50% BPR, such as those held without a controlling interest. These will not be impacted by the new inheritance tax changes. However, the benefit of 100% relief for qualifying assets will be significantly curtailed for estates exceeding the £1 million combined cap.

Combined limit for business and agricultural assets

The £1 million cap is shared between BPR and APR. If your estate includes both business and agricultural assets, they are grouped under a single allowance.

For example, if you hold £600,000 in farming assets and £700,000 in business assets, only £1 million total will receive 100% relief. The remaining £300,000 will be eligible for just 50% relief, resulting in £60,000 in inheritance tax at the point of transfer.

This change could impact those with mixed asset portfolios most severely, especially where estate planning has previously relied on uncapped reliefs.

AIM shares to receive reduced business property relief

Investments in the Alternative Investment Market (AIM) have been a popular IHT planning tool due to their eligibility for 100% BPR. From April 2026, however, this relief will also be reduced to 50%.

This change may influence the attractiveness of AIM shares for individuals seeking tax-efficient investment opportunities as part of their estate planning.

Pension funds to become taxable from April 2027

Another major inheritance tax change is the treatment of pensions. From 6 April 2027, any unused pension funds will be included in the taxable estate upon death.

At present, many pensions can be passed on tax-free outside of the estate. The proposed reform means these funds will now be subject to IHT, potentially at the full 40% rate, if they exceed existing nil-rate thresholds.

Although final legislation is still pending, there has been no indication that this proposal will be revised or withdrawn.

The impact of inheritance tax changes

The introduction of caps and reductions in reliefs will result in more estates becoming liable for inheritance tax, and often to a greater extent than before.

• Business owners and farmers may need to liquidate or borrow against their assets to fund tax bills.
• The six-month deadline for paying IHT remains in place, increasing the urgency to plan.
• Trusts and lifetime gifting strategies will need to be reviewed and possibly restructured.

What action should you take?

These changes are complex and far-reaching. Taking early, professional advice can help to:

• Assess how your current estate plan aligns with the new rules
• Explore available inheritance tax planning strategies
• Mitigate potential tax exposure
• Avoid disruption for your beneficiaries in the future