Myths about inheritance tax refuted:
Inheritance tax (IHT) can be a confounding, complex, and potentially costly ordeal, especially if you're not mindful of the rules. Criticisms often center around IHT being a form of double taxation, given that assets on which income tax and capital gains tax have already been paid may still fall under IHT.
IHT is imposed at a rate of 40% on estates exceeding £325,000; however, the main residence nil-rate band can elevate this tax-free threshold. This rule, introduced in 2017, offers additional relief of up to £175,000 (reaching £500,000 for estates with a home passed to children or grandchildren).
In the 2024 Autumn Budget, it was announced that these bands will remain frozen until 2030. Moreover, changes affecting investors, pension savers, and the agricultural community were unveiled, affecting the treatment of shares listed on the Alternative Investment Market (AIM), pensions, and inherited agricultural assets.
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Changes to IHT rules in the near future are significant. Here's what you need to know.
Key Changes in IHT Rules starting in 2026:
Agricultural and Business Properties
From April 2026, the availability of 100% Agricultural Property Relief (APR) and Business Property Relief (BPR) will be limited to assets worth up to £1 million. Assets above this threshold will qualify for only 50% relief, leading to a 20% IHT charge on the value exceeding £1 million.
AIM Shares
Investments in AIM shares will no longer be eligible for full relief, subjecting them to a 20% IHT charge on their total value.
Pensions
Although not directly addressed in these changes, the broader changes to IHT may encourage individuals to reconsider their estate planning strategies, including pension contributions and transfers.
Clever estate planning is crucial to mitigate IHT liabilities, especially for those with large estates. Strategies such as gifting, trust arrangements, or asset restructuring can significantly reduce tax burdens. Given these rule changes kicking in as early as April 2026, it's essential to review and adjust your estate plans accordingly.
- From April 2026, the availability of full Agricultural Property Relief (APR) and Business Property Relief (BPR) will be limited to assets worth up to £1 million, leading to a 20% Inheritance Tax (IHT) charge on the value exceeding £1 million for agricultural and business properties.
- Investments in AIM shares will no longer be eligible for full Inheritance Tax (IHT) relief from April 2026, subjecting them to a 20% IHT charge on their total value.
- The changes in Inheritance Tax (IHT) rules may encourage individuals to reassess their estate planning strategies, including pension contributions and transfers, to mitigate potential tax burdens in light of the upcoming modifications starting in 2026.
