Inheritance Tax Changes 2026: What Families Need to Know

Significant reforms to inheritance tax are taking effect from 6 April 2026, marking the most substantial changes to agricultural and business property reliefs in decades. These changes will impact how families pass down businesses, farms, and other assets, introducing new caps and reducing certain reliefs for the first time.

Key Changes from April 2026

£1 Million Cap on Full Relief

The most significant change introduces a £1 million combined allowance for agricultural property relief (APR) and business property relief (BPR). Currently, these reliefs provide unlimited 100% relief from inheritance tax on qualifying assets. Under the new rules:

• The first £1 million of combined agricultural and business property continues to receive 100% relief
• Assets above £1 million will receive only 50% relief, resulting in an effective inheritance tax rate of 20% rather than the standard 40%
• The allowance is per individual and cannot be transferred between spouses

Changes to Unlisted Shares

Shares not listed on recognised stock exchanges, such as those on the Alternative Investment Market (AIM), will see business property relief reduced from 100% to 50% in all circumstances, regardless of value. This represents a significant change for investors who have used AIM shares as part of inheritance tax planning strategies.

Impact on Trusts

Trusts will also be subject to the £1 million cap on 100% relief for APR and BPR. This allowance will apply to each tenth anniversary charge and exit charge, with trusts established before 30 October 2024 each having its own £1 million allowance.

Who Will Be Affected?

The government estimates that approximately three-quarters of estates claiming agricultural property relief and the majority of estates claiming business property relief will be unaffected by these changes. However, around  2,000 estates each year are expected to be impacted, including:

• 500 estates claiming agricultural property relief (primarily larger family farms)
• 1,000 estates holding AIM shares or other unlisted securities

Family farms and businesses with values exceeding £1.325 million (combining the new £1 million allowance with the existing £325,000 nil-rate band) will face inheritance tax liability for the first time.

Answering Key Questions about The Coming Inheritance Tax Changes

What will happen to inheritance tax in 2026?

From April 2026, inheritance tax will see the introduction of a £1 million cap on 100% agricultural and business property relief, with 50% relief applying above this threshold. The standard inheritance tax thresholds remain frozen at current levels until 2030, with the nil-rate band staying at £325,000 and the residence nil-rate band at £175,000.

Can I give my house to my son to avoid inheritance tax?

Gifting property before death can reduce inheritance tax liability, but timing is crucial. Gifts made seven or more years before death are generally free from inheritance tax. However, this strategy requires careful consideration of your long-term housing needs and potential care requirements. For married couples, passing assets to a spouse remains tax-free, and proper use of both spouses’ allowances can effectively double the tax-free threshold. When considering family financial arrangements, it is worth understanding how legal rights for cohabiting couples differ from married couples’ inheritance protections.

Will the UK get rid of inheritance tax?

There are currently no government plans to abolish inheritance tax. The 2026 reforms represent a targeted approach to maintain these reliefs whilst ensuring they primarily benefit smaller family businesses and farms. The government has stated it is retaining these reliefs but “better targeting them” as it considers the current system unfair for very small numbers of claimants to claim significant relief.

Planning Strategies Before 2026

Immediate Actions

Value your assets: Obtain current valuations of all business and agricultural property to understand potential tax exposure.

Review ownership structures: Consider how assets are owned and whether restructuring could optimise relief availability.

Assess liquidity: Determine how your estate would fund any inheritance tax liability.

Advanced Planning Options

Lifetime transfers: Making gifts before April 2026 may allow you to benefit from the current 100% relief rates, provided you survive seven years.

Spousal planning: Unlike other allowances, the new £1 million cap cannot be transferred between spouses, making individual planning crucial.

Trust structures: Establishing trusts before 30 October 2024 may provide additional planning opportunities.

Enhanced Payment Options

From April 2026, the government will extend the option to **pay inheritance tax by equal annual instalments over 10 years, interest-free**, to all property eligible for agricultural or business property relief. This provides crucial flexibility for families who wish to retain assets rather than sell them to fund tax liabilities.

Looking Ahead

Additional inheritance tax changes are scheduled for April 2027, when unused pension savings and death benefits will be brought within the scope of inheritance tax for the first time. This creates a narrow window for comprehensive estate planning that considers all upcoming changes.

The inheritance tax thresholds will remain frozen until 2030, meaning the £325,000 nil-rate band and £175,000 residence nil-rate band will not increase with inflation. This threshold freeze effectively increases the inheritance tax burden on more families over time.

Need expert guidance on preparing for the 2026 inheritance tax changes? At A L Law, our experienced team can help you navigate these complex reforms and develop strategies to protect your family’s wealth. Contact us today for a consultation tailored to your circumstances and ensure your legacy planning is optimised for the new inheritance tax landscape.