Financial hardship for business owners and farmers due to inheritance tax regulations - should you consider drafting a new will?
From April 2026, the government will implement new inheritance tax (IHT) rules that will bring about significant restrictions on Business Property Relief (BPR) and Agricultural Property Relief (APR), increasing IHT liabilities for some estates and reducing the amount beneficiaries receive.
Key changes to BPR and APR:
The current BPR offers 100% relief on relevant business property, including shares in trading businesses that are unquoted or listed on recognized stock exchanges. From April 2026, there will be new restrictions particularly on shares considered ‘not listed’ on recognized stock exchanges, which are expected to face higher IHT exposure.
APR, which provides relief on agricultural land occupied by the owner or let to tenants under certain conditions, will also face tightened conditions and restrictions.
Impact on transferring assets to family members:
These changes mean that fewer business and agricultural assets will qualify for full relief, increasing the likelihood that estates will pay more IHT upon death. As a result, the transfer of businesses and agricultural land to younger family members or into trusts will be more costly, reducing the value ultimately received by inheritors.
Approximately 2,000 estates in the UK will pay increased IHT each year due to these reforms, representing 0.3% of all estates and 4.5% of tax-paying estates. Among these, up to 520 estates claiming APR and about 1,500 claiming BPR (mostly on ‘not listed’ shares) will pay more IHT.
Additional considerations:
These reforms reduce the ability to pass on farms and family businesses fully free of IHT. Business owners and agricultural landowners are advised to review their estate and succession plans promptly before April 2026 to assess the impact and consider potential tax planning strategies or valuations to mitigate increased IHT exposure.
Trustees and individuals holding shares or agricultural property in trusts must also re-evaluate the application of reliefs under the new rules.
Further measures:
Another measure is setting up a trust for the surviving spouse with a life interest in the business assets.
These changes will potentially penalize those who are not aware of the new rules and add further complexity to the inheritance tax regime. It is crucial for individuals to check their will and make sure it's up to date to take account of these imminent changes.
From April 2027, pensions will be included in inheritance tax calculations. The £1 million allowance will be uprated in line with inflation from April 2030 onwards. Relief of just 50% will apply on assets over £1 million, resulting in a 20% inheritance tax rate above the threshold. Each person will have their own £1 million allowance for the new inheritance tax relief.
The current spousal exemption remains unchanged, allowing people to pass qualifying assets to a UK, long-term resident spouse free of inheritance tax. However, the unused allowance from someone's death can no longer go to their spouse or civil partner's estate when they die. This means a spouse leaving assets to their children would only benefit from a £1 million allowance rather than a £2 million allowance.
In summary, the April 2026 changes to inheritance tax rules on business and agricultural assets will tighten reliefs, increasing tax liabilities on some estates and complicating the tax-efficient transfer of such assets to family members. Planning ahead is essential to manage potential tax costs. The specifics of how to avoid inheritance tax are discussed in a separate article.
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- In addition to the changes in Business Property Relief (BPR) and Agricultural Property Relief (APR) impacting business and agricultural asset transfers to family members, there will be an increase in pensions being included in inheritance tax (IHT) calculations from April 2027.
- With the implementation of new IHT rules in April 2026, it is crucial for individuals to review their estate and succession plans, as well as their wills, to account for the tightened reliefs on BPR and APR, the inclusion of pensions in IHT calculations, and the potential impacts on personal finance.
