What you need to know about the 2026 IHT changes
New updates to the UK Inheritance Tax (IHT) system will come into force in the upcoming tax year. These reforms will reshape estate planning for families, business owners, farmers and trustees. These changes follow announcements made in late 2025 and early 2026, introducing new caps and reduced relief rates. Below is a summary of the key changes taking affect next month.
Changes to Agricultural Property Relief (APR) and Business Property Relief (BPR)
From 6 April 2026, the 100% Inheritance Tax relief available under Agricultural Property Relief (APR) and Business Property Relief (BPR) will be limited to a combined allowance of £2.5 million per individual. This is an increase from the originally proposed £1 million cap. Any qualifying agricultural or business assets above this threshold will instead receive 50% relief, resulting in an effective inheritance tax rate of 20% on the excess value.
Spousal transfer of unused allowances
The £2.5 million allowance is fully transferable between spouses and civil partners, mirroring the transferability rules for the nil‑rate band. Therefore, this gives couples a combined 100% relief allowance of up to £5 million.
Lifetime gifts
Full 100% relief on lifetime gifts of qualifying APR or BPR assets will only be available for assets transferred on or after 30 October 2024, and only where the donor passes away on or after 6 April 2026.
Inheritance Tax on AIM- listed shares
From April 2026, Alternative Investment Market (AIM) listed shares will no longer qualify for 100% BPR relief. Instead, they will receive 50% relief rate and result in a 20% inheritance tax liability for these holdings.
IHT thresholds frozen until April 2031
The government has extended the freeze on inheritance tax thresholds until 6 April 2031.
This means:
- The nil‑rate band remains at £325,000.
- Residence nil‑rate band stays at £175,000.
The inheritance tax thresholds, which were originally frozen until 2029/30, have now been extended by a further year. However, as property and investment values continue to rise, more estates are being drawn into the inheritance tax net. Therefore, anything above the available thresholds is subject to a 40% inheritance tax charge.
What you should do before the 2026 tax year
The new tax year highlights a big shift from the previous unlimited relief system and increases the importance of early estate planning. Business owners should review their wills, consider restructuring assets, and assess lifetime gifting opportunities to ensure assets and family wealth is protected.
Final thoughts
The new inheritance tax reforms take effect on 6 April 2026. After feedback from businesses, the government has raised the cap from £1 million to £2.5 million. As a result, this offers greater relief for family farms and smaller businesses. Acting now can help individuals, business owners, and trustees protect their assets. It also supports better decision‑making and a more tax‑efficient transition when the new tax year begins.
