Inheritance Tax Changes 2026
The 2025 Autumn Budget introduced significant reforms to Agricultural Property Relief (APR) and Business Property Relief (BPR), which will have important implications for IHT planning for individuals, families, and business owners.
Agricultural and Business Property Relief Reforms
The 2024 Autumn Budget originally proposed a £1 million cap on the value of agricultural and business property that could qualify for relief. Following substantial engagement and feedback from industry groups, the Government has increased this limit to £2.5 million per individual
While this adjustment is welcome, it still represents a major shift from the current regime, under which qualifying agricultural and business assets typically benefit from 100% relief from IHT. These changes are due to take effect from 6 April 2026.
A further update in the 2025 Autumn Budget introduced greater flexibility for couples. From 6 April 2026, any unused portion of an individual’s £2.5 million allowance may be transferred between spouses or civil partners. As a result, the surviving spouse’s estate could potentially access up to £5 million of qualifying relief.
It is important to note that this transfer of unused allowance only occurs after both spouses or partners have passed away, and only if the first to die did not fully utilise their allowance. It is a mechanism that applies between estates, rather than a benefit the surviving spouse can claim during their lifetime.
Continued freeze on Inheritance Tax thresholds
The Budget also confirmed the planned freeze on IHT Nil-Rate Bands at £325,000 has been extended by a further year to April 2031. This extra year of frozen thresholds means more estates will become liable for IHT in the coming years as asset values continue to rise.
Reduction Strategies
Effective IHT planning is most successful when started early, reviewed regularly, and tailored to individual circumstances. Two of the most commonly used approaches are lifetime gifting and trust planning.
Lifetime Gifting
Lifetime gifting can be a highly effective way to reduce the value of your taxable estate by transferring assets to beneficiaries during your lifetime. Most gifts to individuals such as children, grandchildren, or friends are treated as Potentially Exempt Transfers (PETs). Provided you survive for 7 years after making the gift, its value will fall outside your estate for IHT purposes.
Gifts between spouses or civil partners are generally fully exempt, regardless of the value transferred or the period of survival.
Gifts between spouses or civil partners are generally fully exempt, regardless of the value transferred or the period of survival.
Trust Structures
Trusts allow assets to be transferred out of your personal estate during your lifetime. Once placed into a trust, the assets are legally owned by the trustees, which can potentially reduce the value of your estate for IHT purposes.
There are various types of trusts, each with different advantages and considerations. At Fiander ETL, we can guide you through the available options and help identify the trust structure that best supports your longterm objectives.
FAQs
Once I Give an Asset Away, Is It Outside of My Estate?
Not always. If you continue to benefit from an asset after giving it away, such as continuing to reside in a property you have gifted without paying market rent, this will be classed as a Gift with Reservation of Benefit (GWR). In these cases, the asset remains part of your taxable estate, even though legal ownership has changed.
Are Overseas Assets Subject to UK Inheritance Tax?
If you are treated as a long term UK resident, your worldwide estate including foreign property, investments, and bank accounts remains potentially subject to UK IHT.
Recent rule changes mean that an individual’s domicile status is now be influenced by the number of years they have lived in or outside the UK. Anyone who has spent, or intends to spend, a significant period abroad should review how these changes may affect their estate planning.
Recent rule changes mean that an individual’s domicile status is now be influenced by the number of years they have lived in or outside the UK. Anyone who has spent, or intends to spend, a significant period abroad should review how these changes may affect their estate planning.
Is Inheritance Tax Planning a One-Time Event?
As tax laws, asset values, and personal circumstances change over time, IHT planning should be reviewed regularly to ensure wills and strategies remain effective and compliant.
