By Jamiel Zaman

Solicitor

27 March 2026

Article Blog

From 6 April 2026 we will see some important changes to Inheritance tax (IHT) on business and agricultural assets, as well as a freezing of the tax-free thresholds, which will see more people than ever paying inheritance tax on death.

The Nil-Rate Band stays at its 2009 level of £325,000, whilst the Residence Nil-Rate Band stays at £175,000. These thresholds will remain frozen until April 2031. For a married or civil-partnered couple with children and a house, the maximum amount that can be left tax free to the next generation is therefore capped at £1m.

This will mean that more estates will pay inheritance tax due to property values and inflation.

Changes to Agricultural Relief (APR) and Business Relief (BPR)

The first major change in April 2026 is in relation to Agricultural Relief (formerly known as Agricultural Property Relief, or APR) and Business Relief (previously Business Property Relief, or BPR).

APR and BPR are inheritance tax reliefs that can reduce the inheritance tax due on qualifying agricultural or business assets when someone passes away.

Before 6 April 2026, qualifying assets attracted up to 100% relief from inheritance tax, regardless of the value. This allowed famer and business owners to pass on their farming or other business to the next generation tax-free, allowing them to keep the farm or the business operating without having to take any steps in their lifetime to plan for succession, other than making a Will.

Under the new rules, farmers and business owners will need to take advice on how best to structure the ownership and succession of their farms and businesses, to mitigate the inheritance tax burden. This may be crucial to ensuring the farm or business can continue to operate after the owner’s death.

From 6 April 2026 the 100% relief will be replaced with a £2.5 million allowance that will apply to the combined value of assets qualifying for APR and BPR. The first £2.5 million will remain tax free and anything over this threshold will receive a 50%relief.

In effect this means that farmers and family business owners will pay IHT at a rate of 20% on the value of any qualifying farm or other business above the £2.5 million threshold. The £2.5 million allowance applies to each business owner and is transferrable between spouses, which means that a married or civil partnered couple can leave up to £5 million in assets qualifying for APR and BPR before any IHT is due. The seven-year gifting rule will also apply, so that gifts made more than seven years before death will not be taxed and the allowance will refresh every seven years, providing opportunities to pass a farm or business on to the next generation, tax-free through lifetime gifts. The relief also applies to qualifying property held in trusts.

The option to pay any IHT in 10 annual instalments will cover all assets qualifying for APR or BPR. The instalment option on business and agricultural assets is more favourable than the instalment option for other assets, as the instalments for APR and BPR are interest-free.

Alternative Investment Market (AIM) and Enterprise Investment Scheme (EIS) Shares

Another change which will affect estates on death is how Alternative Investment Market (AIM) and Enterprise Investment Scheme (EIS) shares are to be taxed.

Before the changes, 100% relief applied to AIM and EIS holdings that had been owned for a qualifying period, so that if you held AIM or EIS shares for two years you could then pass those on with no IHT liability.

From 6 April 2026, the relief will be reduced to 50%, but the two-year qualifying period will be abolished. What this means is that in effect AIM or EIS shares will be taxed at 20% on the shareholder’s death.

Importantly the £2.5 million allowance available to farmers and business owners does not apply to AIM and EIS shares.

Pensions

The way pension lump sums are taxed will change in April 2027 (not this year) and it is therefore important to review your current situation.

Historically, pensions have been a tax-efficient way for individuals to pass on wealth to the next generation, but the now government plans to bring unused pension funds into the IHT net, making any unused pension lump sum subject to a 40% IHT charge on death.

Pension benefits may also be subject to income tax in the hands of beneficiaries, meaning families could face a combination of IHT and income tax on the same funds.

It is important to note that pension nominations remain vital as this will determine who will receive the benefit. Pensions are not dealt with in your Will.

In summary, under the new rules:

• Each individual will have a £2.5 million allowance which will apply to the combined value of assets qualifying for APR or BPR
• Qualifying assets above £2.5 million will receive 50%relief meaning the excess value  will be subject to inheritance tax at an effective rate of 20%.
• Any unused allowance will be transferable between spouses and civil partners, meaning a married couple or civil partners can pass on qualifying assets worth up to £5 million tax free by combining two £2.5 million APR or BPR Allowances.
• AIM and EIS shares relief will now be 50%.

The changes discussed will affect many people, and the changes could result in a significant inheritance tax bill where none was expected before.

Given the changes due to take place it is advised you consider your own position by:

• Reviewing the value and nature of your assets
• Review Wills, trusts, and current succession plans
• Consider whether your current set up still achieves the goal you want to achieve as plans that work in the current regime may no longer deliver the outcome you expect or want.
• Take advice on how best to structure your assets and succession planning to ensure you are making use of the full range of exemptions available.

If you have any questions regarding Inheritance tax or estate planning and would like to discuss any other aspects of this article, please do not hesitate to contact our Wills, IHT, Trusts & Probate team.

Disclaimer: General Information Provided Only

Please note that the contents of this article are intended solely for general information purposes and should not be considered as legal advice. We cannot be held responsible for any loss resulting from actions or inactions taken based on this article.