There are significant and wide-reaching changes to Inheritance Tax (IHT).
Agricultural Property Relief and Business Relief
With effect from 6 April 2026, the current 100% Agricultural Property and Business Relief on all qualifying assets will be restricted to the first £1 million with a reduced 50% relief on the excess. As a result, death estates will be subject to 20% IHT on all agricultural and business property over the £1 million allowance.
Trusts that are subject to IHT, and were set up before 30 October, will be entitled to the £1 million allowance for agricultural property and business assets. In future, multiple trusts set up by the same person will share the allowance.
The government has confirmed that it will extend the existing scope of Agricultural Property Relief from 6 April 2025 to land managed under an environmental agreement with or on behalf of the UK government, devolved governments, public bodies, local authorities or relevant approved responsible bodies, in accordance with the previous government’s consultation.
Unlisted Shares
Shares designated as ‘unlisted‘ (most commonly for general investors these are Alternative Investment Market (AIM) shares) currently benefit from 100% Business Relief. This will reduce to 50%, with no allowance, so IHT will be payable on these investments at 20%.
Lifetime Gifting
In a move to prevent gifts avoiding the above changes between now and 6 April 2026, the rules will apply to lifetime transfers on or after 30 October if the donor dies after 5 April 2026.
Nil-Rate Band
The existing £325,000 IHT nil-rate band remains frozen until 5 April 2030. The Residence Nil-Rate Band, available to estates where a property is left to direct descendants, remains at £175,000 and transferability between spouses’ death estates continues. The ‘7 year rule’ for lifetime gifting remains unaltered.
Pensions
Unused pension funds and death benefits payable from a pension into a person’s estate will be subject to IHT with effect from 6 April 2027. This a significant change and unwelcome news.
The IHT measures announced in the Budget are projected to raise £2.2 billion a year by 2029/30.
