Prosperous Individuals Allegedly Evaded £343m in Inheritance Tax: Strategies to Steer Clear of Tax Regulations Violations
Starting from April 2026, significant changes are being made to the UK's Inheritance Tax (IHT) rules for farms, family businesses, and pensions. These changes are expected to increase the tax payable to HMRC and bring about operational challenges for both the tax authority and taxpayers.
Changes to Agricultural Property Relief (APR) and Business Property Relief (BPR)
Currently, APR and BPR provide 100% relief from IHT on qualifying farm and business assets, making them exempt from the tax. From April 6, 2026, a £1 million combined allowance per person will apply to these qualifying assets. Within this allowance, the 100% relief continues. However, any amount above £1 million will be subject to a 50% relief rate instead of 100%, effectively increasing the IHT rate on the excess to 20% (half the current 40% rate).
AIM-listed shares and certain similar shares do not benefit from the £1 million allowance and will continue to receive only 50% relief on all amounts at all times. This means many estates with farm or business assets valued above £1 million will face a higher IHT bill. The changes also affect trusts, introducing additional complexity regarding ten-year and exit charges.
Changes to Pensions
From April 6, 2027, unused pensions and death benefits will become subject to IHT. This applies to both defined contribution and defined benefit pension schemes. Previously, these pension savings and death benefits were mostly outside the scope of IHT. However, some life policy products aligned with pension arrangements remain exempt.
Impact on HMRC and Taxpayers
The new rules increase the IHT payable on large farm and business estates exceeding £1 million in qualifying assets. More estates and trusts will become subject to IHT or higher rates. HMRC will face increased operational challenges and costs due to the more complex rules. Taxpayers may face higher tax liabilities and increased administrative and compliance costs.
Estates that are “asset rich and cash poor” (e.g., farms or businesses with valuable property but little liquidity) may struggle to find funds to pay the increased IHT under these new rules.
Implications and Enforcement
The reduction in business property relief and agricultural property relief, and the inclusion of pensions in IHT are expected to bring in more IHT for the Treasury. HMRC conducts inheritance tax investigations to detect underpaid taxes. The increased scope of assets eligible for IHT leads to more potential disputes.
Lay executors may inadvertently under-report IHT. Deliberate omissions, such as failing to declare items such as jewellery or paintings passed on to relatives, can also be an issue. Claiming a large cash gift was given more than seven years ago, when it was actually more recently, is a concern for HMRC.
The figures for suspected tax avoidance and evasion could increase significantly in future years following inheritance tax rule changes from April 2026. HMRC uses property contents insurance to check for omitted valuable items. HMRC also looks for undeclared cash or valuables in inheritance tax forms. Deliberately undervaluing a residential property in an estate is a concern for HMRC.
In summary, from April 2026, the introduction of a £1 million allowance for farm and business relief with a tapered rate above that threshold, combined with the 2027 pensions IHT inclusion, will likely increase the inheritance tax paid to HMRC, especially affecting family businesses, farms, and pension holders with large unused funds.
[1] HMRC Consultation Document on Agricultural Property Relief and Business Property Relief [2] Government Response to the APR/BPR Consultation [3] HMRC's Policy Paper on APR/BPR Changes [4] Finance Act 2021 [5] HMRC's Technical Note on APR/BPR Changes
- The changes to the UK's Inheritance Tax (IHT) rules, including the introduction of a combined £1 million allowance for Agricultural Property Relief (APR) and Business Property Relief (BPR) with a tapered relief rate above that threshold, are expected to increase the IHT payable to HMRC, particularly affecting businesses, farms, and individuals with large properties or pension funds.
- From April 2027, pensions will become subject to IHT, meaning that unused pensions and death benefits will become taxable, affecting both defined contribution and defined benefit pension schemes, and potentially leading to higher tax liabilities for taxpayers.
