Inheritance Tax Overhaul: What’s Changing in 2026 and Beyond?

The UK government is introducing major reforms to Inheritance Tax (IHT) starting in April 2026, with further changes planned for 2027. These reforms are designed to modernise the tax system, close long-standing loopholes, and ensure that wealthier estates contribute more fairly. However, they also raise significant planning challenges for business owners, farmers, and families with substantial assets.

Key Changes from April 2026

1. Capping of Agricultural and Business Property Reliefs

Two of the most generous IHT reliefs — Agricultural Property Relief (APR) and Business Property Relief (BPR) — are being significantly curtailed:

• 100% relief will be capped at £1 million per individual (combined APR and BPR).
• 50% relief will apply to the value above £1 million.
• No transfer of unused relief to a surviving spouse.

This is a major shift. Previously, many farms and family businesses could be passed on entirely tax-free. Under the new rules, estates exceeding the cap could face substantial tax bills.

Example: A farming estate worth £3 million:

• The first £1 million qualifies for 100% relief.
• The remaining £2 million qualifies for 50% relief on the 40% tax rate.
• At 40% IHT, that’s a £400,000 tax bill.

2. Changes to AIM-Listed Shares

From April 2026, AIM-listed shares will only qualify for 50% BPR, regardless of value. They will not benefit from the £1 million 100% relief allowance

This change affects many investors who previously relied on AIM shares for IHT planning.

Looking Ahead to April 2027

Pensions to be included in IHT

Currently, most pension pots fall outside the taxable estate. But from April 2027, unused pension funds are to be included in the estate for IHT purposes:

• The nil-rate band (£325,000) will apply across pensions and other assets.
• This could reduce the tax-free allowance available for other parts of the estate.
• There’s also a risk of double taxation — IHT on the estate and income tax when beneficiaries withdraw pension funds

Who Will Be Affected?

These changes will impact:

• Farmers and landowners with estates exceeding £1 million in agricultural or business assets.
• Family business owners who assumed their enterprises could be passed on tax-free.
• Investors holding AIM-listed shares for IHT planning.
• Individuals with large pension pots who planned to pass them on tax-efficiently.

What Can You Do Now?

With less than a year before the first wave of changes, it’s essential to:

• Review your estate plan with a qualified tax adviser.
• Consider gifting strategies, trusts, or restructuring ownership of business assets.
• Reassess the role of pensions in your inheritance planning.
• Stay informed about further legislative updates.