Inheritance Tax Changes in 2026: What You Need to Know

April 2026 brought some of the most significant changes to inheritance tax (IHT) in years. If you own a farm, run a business, or hold AIM-listed shares, these changes could have a major impact on your estate. Here's what's changed and what you should do about it.

What's changed from April 2026?

Agricultural and business property relief

Previously, farms and qualifying businesses could pass to the next generation completely free of inheritance tax, regardless of value. That unlimited 100% relief has now been capped.

From April 2026:

• 100% relief applies to the first £1 million of combined agricultural and business property
• Above £1 million, relief drops to 50%, meaning a 20% effective IHT rate on the excess
• Married couples and civil partners can transfer the allowance, giving a combined £2 million at 100% relief

For a family farm worth £2.5 million, this could mean an IHT bill of up to £300,000:money that would previously have been entirely exempt.

AIM-listed shares

Shares listed on the Alternative Investment Market (AIM) previously qualified for 100% business property relief. From April 2026, this has been cut to 50% for all investors, creating a 20% effective tax rate on death regardless of how long you've held the shares.

Frozen thresholds until 2031

The government has confirmed that the main IHT thresholds remain frozen until at least April 2031:

• Nil-rate band: £325,000 (frozen since 2009)
• Residence nil-rate band: £175,000

With property prices continuing to rise, more estates are being drawn into the IHT net each year. A married couple can still pass on up to £1 million tax-free (combining both allowances), but anything above that is taxed at 40%.

What's coming in April 2027?

Perhaps the biggest change is still ahead. From April 2027, unused pension funds will be brought into the IHT net for the first time.

Currently, pensions are one of the most tax-efficient ways to pass on wealth because they sit outside your estate for IHT purposes. That's about to change. The government estimates this will affect around 10,500 additional estates per year.

For those with large pension pots, the combined impact of IHT (40%) and income tax on drawdowns (up to 45%) could create an effective tax rate of 64% to 67% on inherited pension funds.

What should you do?

Review your will

If your will was written before these changes, it may no longer achieve what you intended. Tax-planning provisions that relied on unlimited business or agricultural relief may need updating.

Consider your pension strategy

With pensions coming into the IHT net from 2027, the old advice to "spend other assets first and leave your pension" may no longer make sense. Speak to a financial adviser about whether to adjust your drawdown strategy.

Use your allowances

Make sure you're taking advantage of:

• Annual gift exemptions (£3,000 per year)
• Small gifts (£250 per person per year)
• Gifts from surplus income
• Potentially exempt transfers (gifts that become tax-free after 7 years)
• Charitable gifts (which reduce the IHT rate from 40% to 36% if you leave at least 10% of your estate to charity)

Get professional advice

These changes are complex, and the right strategy depends on your specific circumstances. A solicitor or financial adviser can help you plan effectively. In the meantime, make sure your will is up to date to reflect the new tax landscape.

Sources

• Changes to agricultural and business property reliefs for inheritance tax — House of Commons Library
• Inheritance Tax Changes in 2026: What They Mean for You — Sills & Betteridge LLP
• Inheritance Tax Changes in 2026–2027: What You Need to Know — Ward Goodman
• Major changes to pensions and inheritance tax from April 2027 — Womble Bond Dickinson
• From exempt to exposed: April 2027 pension and IHT changes — Standard Life
• Inheritance Tax 2026 UK: Key Changes & New Rules Guide — BLB Solicitors