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Changes to Inheritance Tax: What you need to know

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At the recent Autumn Budget it was announced that sweeping changes to inheritance tax (IHT) would come into play for deaths occurring on or after 6th April 2026, however there are rule changes which can also apply from last week’s Budget date. 

The main changes are: 

  • Unused pension pots payable on death or transferred on death will now be liable to IHT 
  • Agricultural relief (AR) which applies on the agricultural value of land, which used to garner relief at 100% with no cap; will be capped so that the first £1m of value will be relieved at 100%, with any remainder at 50%. 
  • Similarly, business relief (BR) which usually applies on shareholdings in trading family business amongst other assets, will be capped so that the first £1m of value will be relieved at 100%, with any remainder at 50%. Note the total amount of AR and BR cap allowed per individual will be £1m. 
  • Shares listed on alternative share markets, such as AIM, will be relieved at 50%. 

Business relief has been in the tax code since being introduced by James Callaghan’s Government in 1976, when it stood at 30%. It was increased over the years to 100% under John Major’s Government and has stayed at that level since then.  

This change in IHT rules is undoubtably the greatest in a generation, since probably the creation of the tax back in 1986. It is therefore imperative that you appreciate these changes fully and take proactive steps to understand what this means for you, your family and your business.  

We do not know yet when the draft legislation will be ready for a full review of the new rules, HMRC seem to suggest this will be in 2025 following a consultation.

There could however be options available to you know which will limit your exposure, for example; 

  • Remuneration strategy from company/pension and linking to any gifts out of income
  • Gifts into trust or outright gifts being made
  • Alteration of your Will to ensure that reliefs are maximised
  • Ensure that the ownership structure of the company is set up to maximise relief.
  • Options to understand how any IHT liability will be funded

Whilst there maybe options available, no action should be taken without seeking detailed advice to ensure you don’t fall foul of regulations and anti-avoidance measures. 

If you want us to assess how this impacts on your estate planning let us know and we will send you a checklist of the information we need to make an initial assessment whereby we can advise whether a full Inheritance tax review should be undertaken. 

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