Inheritance Tax: Business and Agricultural Relief Changes from April 2026

The UK government has announced significant reforms to Inheritance Tax (IHT) reliefs for business and agricultural property, set to take effect from 6 April 2026. These changes aim to make the system fairer and more targeted, while continuing to support family farms and businesses. Here’s a breakdown of what’s changing and what it means for estate planning.

Key Changes to Agricultural and Business Property Relief

Currently, Business Property Relief (BPR) and Agricultural Property Relief (APR) offer up to 100% relief on qualifying assets, allowing many estates to pass on substantial wealth without incurring IHT. From April 2026, however, the government will introduce a £1 million cap on the value of assets eligible for full relief.

1. Introduction of a £1 Million 100% Relief Allowance

• Estates will be able to claim 100% relief on the first £1 million of combined qualifying agricultural and business property.
• Any value above £1 million will only qualify for 50% relief, resulting in an effective IHT rate of 20% on the excess.

This allowance applies to:

•   Property in the estate at death
•   Lifetime transfers within 7 years of death
•   Immediate lifetime transfers into trusts

2. Impact on Trusts

• Trusts will also benefit from a separate £1 million allowance for 100% relief on qualifying property.
• This applies to both 10-year anniversary charges and exit charges.
• For trusts created after 30 October 2024, the allowance may be split between multiple trusts established by the same settlor to prevent fragmentation.

3. Reduction in Relief for Certain Shares

• Shares not listed on recognised stock exchanges (e.g., AIM shares) will only qualify for 50% relief, regardless of value.
• This change targets a small number of estates that currently benefit disproportionately from BPR.

Transitional Rules and Timing

• The new rules will apply to lifetime transfers made on or after 30 October 2024, if the donor dies on or after 6 April 2026.
• This prevents individuals from making large transfers before the deadline to avoid the new limits.

Who Will Be Affected?

According to HMRC estimates:

• Around 2,000 estates per year will pay more IHT due to these changes.
• Of these, approximately 500 estates will be affected by changes to APR, and 1,000 estates will be impacted by the reduced relief on unlisted shares.
• The majority of estates—over 70%—claiming APR or BPR will remain unaffected.

Planning Considerations

Estate owners and trustees should:

• Review asset portfolios, especially holdings in AIM or other unlisted shares.
• Consider restructuring trusts to optimise use of the new allowances.
• Update wills and succession plans to reflect the new relief thresholds.
• Seek professional advice to navigate the transitional rules and maximise tax efficiency.

Conclusion

While the reforms preserve the core principles of APR and BPR, they introduce a more progressive structure that limits relief for high-value estates. For most families, the impact will be minimal, but those with substantial agricultural or business holdings should act now to prepare for the new regime.

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