Inheritance Tax Changes Explained
Inheritance Tax (IHT) is set to undergo significant changes in the next two years, marking a shift that will have far-reaching implications. Following announcements in the Autumn Budget, new rules coming into effect in April 2026 and April 2027 will impact the value of reliefs, the taxation of pensions, and the structuring of estates.
To help business owners, farming families, and individuals prepare, our Partners, Nick Park, Ed Gooderham, Tracey Metcalfe, and Susannah French, recently sat down for a roundtable discussion on what’s changing and how to plan.
Here’s an overview of the key points discussed.
Understanding Inheritance Tax and Current Allowances
Inheritance Tax is charged at 40% on the value of your estate above the available thresholds. Each individual currently has:
- A nil rate band of £325,000
- A residence nil rate band of £175,000 if their home passes to children or grandchildren
For couples, these allowances can be combined and transferred on death, meaning many estates qualify for up to £1 million in tax-free benefits.
However, once an estate’s value exceeds £2 million, the residence nil rate band starts to taper. For every £2 over that threshold, £1 of relief is lost. It means estates worth £2.35 million or more lose the additional £175,000 relief entirely.
This taper trap often catches families off guard, especially when assets pass entirely to a surviving spouse through a mirror will, leaving one spouse with an estate well above £2 million.
The £1 Million Cap on APR and BPR (April 2026)
From April 2026, two of the most valuable reliefs, Agricultural Property Relief (APR) and Business Property Relief (BPR), will be restricted.
Currently, qualifying assets can attract 100% relief, removing them entirely from the taxable estate. From April 2026, however:
- Only the first £1 million of qualifying assets per person will receive 100% relief
- Any value above that will attract only 50% relief
This is particularly significant for farming families and business owners with high-value land, machinery or trading assets.
As Nick Park explained during the discussion:
“This change could severely restrict the amount of relief available. It’s important to remember that the £1 million cap applies per individual, it’s not shared between spouses.”
Proper ownership planning is essential to ensure both partners can fully utilise their reliefs. Splitting ownership of business and agricultural assets between spouses can help preserve both £1 million allowances and reduce future tax exposure.
Pensions to Fall Within Inheritance Tax (April 2027)
A significant shift arrives in April 2027, when pensions will be brought within the scope of Inheritance Tax.
For nearly two decades, pensions have been a key tool for efficiently passing wealth to the next generation. Under the new rules, the value of pension funds will be included in the taxable estate.
Ed Gooderham highlighted:
“We’ve been advising clients for years to build up pensions because they sat outside the estate. From 2027, that’s changing. Some families could face a combined tax rate of around 64% once income tax and inheritance tax are both applied.”
This makes it more critical than ever to review how pensions fit within your estate and consider whether alternative planning, such as trusts or structured withdrawals, could reduce exposure.
Wills, Ownership and the Mirror Will Trap
Many couples still rely on mirror wills, where each partner leaves everything to the other. While once considered straightforward, this approach can now create tax inefficiencies.
Susannah French explained:
“If everything passes to one spouse, their estate could easily exceed £2 million and lose valuable reliefs. You can’t transfer any unused APR or BPR to the surviving spouse, so one person’s relief is lost entirely.”
In many cases, it’s more effective for wills to pass some assets to the next generation or into trust on the first death, so that both sets of reliefs are used.
Gifting and the Seven-Year Rule
Lifetime gifting remains a powerful way to reduce an estate, but it must be planned carefully and strategically. Gifts are generally exempt if you survive seven years from the date of transfer. If you pass away sooner, taper relief applies:
- 0–3 years: 100% of the gift is taxable
- 3–4 years: 80%
- 4–5 years: 60%
- 5–6 years: 40%
- 6–7 years: 20%
- After 7 years: 0%
Gifts into trusts can also trigger IHT charges if above certain thresholds, so professional advice is essential.
Landlords and Property Portfolios
Many landlords assume their property portfolio qualifies as a business for BPR purposes. Unfortunately, that’s not the case.
Property investment is treated as passive, not trading, so Business Property Relief does not apply. The equity value of the properties (after deducting mortgages) falls directly into the taxable estate and can be subject to a 40% tax.
As Ed noted:
“We often see landlords surprised when they realise their portfolio isn’t eligible for relief. It’s classed as an investment, not a trade.”
Deeds of Variation and Missed Deadlines
Where someone has passed away recently, it may still be possible to restructure their estate through a Deed of Variation, provided that it is done within two years of death and with the agreement of all affected beneficiaries.
Used correctly, this can rebalance assets between spouses or pass wealth directly to children, allowing them to utilise multiple allowances. Once the two-year deadline passes, the opportunity is lost.
Insurance as a Planning Tool
Insurance can provide a practical short-term safety net while longer-term planning takes effect. Policies such as second-death term insurance can help cover potential IHT liabilities, especially during the seven-year gifting period.
As Susannah explained:
“Families often use insurance to cover the risk if a gift is made and the donor doesn’t survive seven years. Holding the policy in trust keeps it outside the estate.”
Intestacy and Powers of Attorney
Passing away without a valid will leaves your estate subject to intestacy laws, which can lead to confusion and unintended consequences.
Without a will:
- A spouse inherits only the first £322,000, plus half of the remainder
- The other half passes equally to the children
- If there are no relatives, the estate passes to the Crown
Alongside an up-to-date will, setting up Lasting Powers of Attorney (LPAs) ensures someone you trust can make decisions on your behalf if you lose capacity, one for financial affairs and one for health and welfare.
What to Do Now
Planning for inheritance tax isn’t about avoiding it; it’s about protecting what you’ve built. Our panel agreed on three key steps to take now:
- Know what you own
Map out your assets and ownership structure. Understanding who owns what is the starting point for all planning. - Review your wills and reliefs
Check whether mirror wills, asset ownership or outdated structures could cause reliefs to be wasted. - Act early
The changes in April 2026 and 2027 are closer than they seem. The earlier you start planning, the more options you have.
As Nick Park summed up:
“You can’t control the rule changes, but you can control your plan.”
The Key Message
Inheritance Tax planning is complex, but early advice makes all the difference. Reviewing your estate, updating your wills, and seeking professional support now could save your family a significant amount later.
If you’re unsure how these changes might affect you, our team can help you map out your position, understand your reliefs, and plan with confidence.
Get tailored advice on Inheritance Tax and estate planning. Contact Green & Co Accountants and Tax Advisors to arrange a review of your wills, pensions and asset structure.
Prefer to listen?
You can hear the whole conversation in our Roundtable Special: Inheritance Tax Changes Explained, now available on The Profit Playbook podcast and our YouTube channel.
