Inheritance Tax Changes 2026
The 2025 Autumn Budget brought several important developments that will significantly affect IHT planning for individuals, families, and business owners.
Agricultural and Business Property Relief Reforms
Last Autumn’s budget proposed a £1 million limit on relief for agricultural and business property. After much campaigning from affected groups, the limit has been increased to £2.5 million per individual.
Regardless of this increase, the limit represents a significant overhaul from current regulations, as qualifying business and agricultural assets currently receive 100% relief from IHT; this will change from 6 April 2026.
The 2025 Autumn budget softened regulations around this cap, meaning that from 6 April 2026, any unused portion of the £2.5 million allowance can be transferred between spouses or civil partners. Even if one spouse died before the changes take effect, their unused allowance can still be applied, allowing a surviving spouse’s estate to benefit from up to £5 million of qualifying relief.
Importantly, this transfer applies only after both spouses have passed and only if the first spouse did not fully use their allowance. It is a transfer between estates, not something the surviving spouse can claim while their partner is still alive.
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 Inheritance Tax planning means starting early, seeking tailored advice, and regular reviewing. Two of the most used strategies are lifetime gifting and trust planning.
Lifetime Gifting
Lifetime gifting can be an effective way to reduce the value of your taxable estate by transferring money or assets to a beneficiary while you are alive. Gifts made to children or friends are classed as Potentially Exempt Transfers (PETs), if you survive for 7+ years after the date it is given then it won’t count towards your estate for IHT purposes.Gifts to a spouse or civil partner are usually fully exempt from IHT, regardless of how long you survive.
Trust Structures
Trusts work by removing assets from your personal estate during your lifetime. Once in a trust, these assets legally belong to the trustees, which can potentially reduce the value of your personal estate.
There are many types of trust, and finding the right one for you can be a complex process. At Fiander ETL, we can help simplify your decision and explain exactly what trust would best fit your needs.
FAQs
Once I Give an Asset Away, Is It Outside of My Estate?
Gifts where the donor continues to benefit (such as a house in which they live rent-free) are considered ‘Gifts with Reservation of Benefit’. This means that the assets remain part of the donor’s taxable estate, even though legal ownership has passed to someone else.
Are Overseas Assets Subject to UK Inheritance Tax?
If you are a UK-domiciled individual, your entire estate – including assets abroad – will still potentially be subject to UK IHT, including foreign property, investments, and bank accounts.Recent rule changes mean that an individual’s UK domicile status can now be influenced by the number of years they have lived in or outside the UK. Anyone who has lived, or plans to live, abroad should ensure they understand these new rules and how they 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.
