Inheritance tax has been through a period of considerable change since the Autumn Budget in October 2024, and it is understandable that many of our clients have been left unsure where they now stand. Some of the proposals first announced were revised before they came into force, and further changes are still to come.
In short, the headline 40% rate of inheritance tax is unchanged, and the main tax-free allowances remain frozen. However, since 6 April 2026, business and agricultural property relief have been restricted, and from 6 April 2027 most unused pension funds will fall within the scope of inheritance tax for the first time. In this guide, we explain what has changed, what is still to come and the practical steps you may wish to consider.
Inheritance tax at a glance in 2026
| Allowance or rule | Position in 2026/27 |
|---|---|
| Standard rate of inheritance tax | 40% |
| Nil rate band | £325,000 per person, frozen until April 2031 |
| Residence nil rate band | Up to £175,000 per person, frozen until April 2031 |
| Business and agricultural property relief | 100% relief on the first £2.5m of qualifying assets, 50% relief above that |
| AIM-listed shares | 50% relief |
| Unused pension funds | Outside the estate until 5 April 2027, then generally included |
The tax-free allowances remain frozen
Everyone has a nil rate band of £325,000, which is the amount of an estate that can pass free of inheritance tax. In addition, the residence nil rate band of up to £175,000 is available where a home is left to children or grandchildren. For a married couple or civil partners, unused allowances can pass to the survivor, which means that up to £1m can often be passed on free of inheritance tax.
Both allowances are now frozen until April 2031. The nil rate band has not increased since 2009, and as property values and savings have grown, more families are finding that their estate exceeds these thresholds. It is also worth remembering that the residence nil rate band is gradually withdrawn for estates worth more than £2m.
Business and agricultural property relief from 6 April 2026
The most significant change for business owners and farmers concerns business property relief (BPR) and agricultural property relief (APR). These reliefs allow qualifying business interests and farmland to be passed on with reduced, or no, inheritance tax, so that families are not forced to sell a business or farm to meet a tax bill.
Until April 2026, qualifying assets of any value could attract 100% relief. The October 2024 Budget proposed limiting this to the first £1m of combined qualifying assets. Following extensive representations from the farming and business communities, the government increased that figure to £2.5m in December 2025 and confirmed that any unused allowance can pass to a surviving spouse or civil partner.
The position since 6 April 2026 is therefore as follows:
- The first £2.5m of combined business and agricultural property that qualifies for 100% relief remains free of inheritance tax.
- Above £2.5m, relief is given at 50%, which results in an effective inheritance tax rate of 20% on the excess.
- Spouses and civil partners can transfer any unused allowance, so a couple can potentially pass on up to £5m of qualifying assets between them, in addition to their nil rate bands. This applies even where the first death occurred before 6 April 2026.
- Paying the tax: inheritance tax on assets that qualify for APR or BPR can be paid in 10 equal annual instalments, free of interest.
- Trusts that hold qualifying assets have their own £2.5m allowance, which refreshes every 10 years.
A worked example
To illustrate the effect, consider a shareholder whose interest in a family trading company is worth £5m. On their death, the first £2.5m would receive 100% relief, but the remaining £2.5m would receive only 50% relief. Leaving aside any other allowances, this would result in an inheritance tax liability of £500,000 on the shares, which is why it is worth reviewing succession plans now. Our family business solicitors can advise on succession planning for family companies.
AIM-listed shares
Shares in companies listed on the Alternative Investment Market (AIM) previously qualified for 100% business property relief, provided they had been held for at least two years. Since 6 April 2026, they qualify for 50% relief only, regardless of their value. Many people hold AIM portfolios specifically for inheritance tax planning, so if this applies to you, it is worth reviewing your position with your financial adviser.
Lifetime gifts of business and farm assets
The £2.5m allowance also applies to lifetime gifts. Gifts of qualifying assets made on or after 30 October 2024 may reduce the allowance available on death if the person who made the gift dies on or after 6 April 2026 and within seven years of making it. This makes careful timing and record keeping more important than ever. Our article on inheritance tax changes to company shares and trusts looks at this in more detail.
Pensions and inheritance tax from April 2027
At present, most unused pension funds and death benefits sit outside a person’s estate for inheritance tax purposes. For many families, this has made pensions one of the most tax-efficient ways of passing on wealth.
From 6 April 2027, that will change. For deaths on or after that date, most unused pension funds and pension death benefits will be included in the estate and may be subject to inheritance tax at up to 40%. Some benefits, such as death in service payments from registered pension schemes, are not expected to be included.
This is a significant shift, and it may mean that an estate which currently falls below the inheritance tax threshold will exceed it once pension savings are taken into account. We would recommend reviewing your pension nominations, your Will and your wider financial plans together, ideally with both your solicitor and your financial adviser.
What has not changed
It is equally important to know what remains the same. Gifts between spouses and civil partners are still generally exempt from inheritance tax. The seven year rule for lifetime gifts is unchanged, so a gift made more than seven years before death will usually fall outside the estate. The annual exemptions, including the £3,000 annual gift allowance, also remain in place.
Trusts continue to be a valuable planning tool, although the rules around them have become more complex. Our guide to asset protection with trusts explains how they can be used, and some families also consider family investment companies as an alternative.
Practical steps to consider now
Every estate is different, but in our experience the following steps are a sensible starting point:
- Review your Will. Make sure it reflects the current rules and uses the available allowances efficiently. Our guide on how often you should update your Will explains when a review is needed.
- Value your business or farm. If qualifying assets are worth more than £2.5m, or more than £5m for a couple, there may now be a liability where none existed before.
- Consider your succession plans. It may be appropriate to bring forward plans to pass assets to the next generation, taking into account the seven year rule and any capital gains tax implications.
- Review your pension arrangements. Consider how your pension will be treated from April 2027 and whether your nominations are up to date.
- Think about how any tax would be paid. Life insurance written in trust can sometimes provide funds to meet a liability without the need to sell assets.
Frequently asked questions
What is the inheritance tax threshold in 2026?
The nil rate band is £325,000 per person, with an additional residence nil rate band of up to £175,000 where a home is left to direct descendants. Both are frozen until April 2031.
Has the £1m cap on business property relief been increased?
Yes. The cap first announced in October 2024 was £1m, but the government increased it to £2.5m before it took effect on 6 April 2026. Any unused allowance can be transferred to a surviving spouse or civil partner.
Will my pension be subject to inheritance tax?
For deaths on or after 6 April 2027, most unused pension funds and death benefits will be included in your estate for inheritance tax purposes. Until then, they generally remain outside it.
Do AIM shares still qualify for inheritance tax relief?
Yes, but since 6 April 2026 qualifying AIM shares receive 50% relief rather than 100%, which means an effective inheritance tax rate of 20%.
Is the seven year rule for gifts changing?
No. Gifts made more than seven years before death generally remain outside the estate, although gifts of business or agricultural property can now affect the £2.5m relief allowance.
How our Wills, Trusts and Probate team can help
With so much having changed in a relatively short time, it is understandable to feel uncertain about whether your existing plans still work. Our Wills, Trusts and Probate solicitors can review your current arrangements, explain how the new rules affect you and help you put a plan in place that protects the people who matter to you.
To arrange a conversation with a member of the team, please call us on 0161 930 5117, email willsteam@gorvins.com or contact us online.
This guide is for general information only and does not constitute legal, tax or financial advice. The position is as at 28 September 2026.