Rules under review | Great British Life

Laura Clare at Flint Bishop reveals the major changes ahead for inheritance tax reliefs and how they will impact you.

The laws surrounding inheritance tax (IHT) have remained largely unchanged since 2007. However, following the autumn budget last year, significant reforms are on the horizon. Individuals who previously had the ability to pass on family businesses, agricultural assets, and pensions largely tax-free to their loved ones are set to be most affected.

Currently, where qualifying conditions are met, trading business interests held for more than two years can be transferred to a beneficiary either during a person’s lifetime or upon death and will attract 100 per cent business property relief (BPR) from IHT.

Similarly, farming and agricultural land have provisionally qualified for 100 per cent agricultural property relief (APR). These valuable reliefs have enabled family businesses and farms to be passed down through generations without being impeded by a substantial tax liability.

However, the changes announced in the autumn budget – set to take effect from April 6, 2026 – will significantly reduce the value of these reliefs and will have a direct impact on business owners and the farming community.

From that date, a £1 million cap will apply to both BPR and APR. This means that only the first £1 million worth of qualifying business and/or agricultural assets will be eligible for 100 per cent relief. Any value above this threshold will qualify for relief at only 50 per cent, resulting in an effective 20 per cent inheritance tax charge on death. The same cap will also apply to assets gifted during one’s lifetime, whether to individuals or trusts.

Assets that already attract only 50 per cent relief will not be affected by the new rules. Importantly, the £1 million cap applies across the entire estate. If an estate contains both business and agricultural assets, the cap is combined, meaning there is just one £1m allowance covering all qualifying assets.

These changes are significant and complex in their application – not only to estates but also to existing trusts holding business and agricultural assets. While consultations have taken place and final legislation is still awaited, there is currently no indication that the proposals announced in the autumn budget will be altered.

In addition, a further key change affects investments in the alternative investment market (AIM). Previously, AIM shares were eligible for 100 per cent BPR. Under the new rules, this relief will be reduced to 50 per cent.

(Image: Flint Bishop Limited) Another major reform relates to the treatment of pensions. From April 6, 2027, pension funds that would previously have passed tax-free to beneficiaries on death will now be included in the taxable estate for IHT purposes. Again, while we await detailed legislation, there has been no indication that this proposal will be withdrawn or revised.

These sweeping changes will result in more estates falling within the scope of inheritance tax. Small businesses and farmers, in particular, will face the pressing challenge of how to fund the resulting tax liabilities – which are due within six months of death – in order to avoid interest and penalties.

Given the complexity and significance of these reforms, early planning is essential. Seeking advice from a suitably qualified adviser is now more important than ever to ensure proper preparation and peace of mind for the future.

For further information and tailored advice on how these changes may affect you, please contact Laura Clare at Flint Bishop.

Tel: 01332 226116

Email [email protected]