The biggest inheritance tax changes in decades took effect on 6 April 2026. For the first time, the 100% relief that business owners and farmers have relied on is capped. Business Property Relief (BPR) and Agricultural Property Relief (APR) together now give full relief only on the first £2.5 million of qualifying assets per person. Anything above that receives 50% relief instead, creating a new tax exposure that did not exist before.
What Are the Inheritance Tax Changes From April 2026?
Under the previous rules, Business Relief and Agricultural Relief gave 100% relief on qualifying business and agricultural assets with no upper limit. A business owner or farmer with £5 million of qualifying assets paid no Inheritance Tax on that value at all.
The new rules cap combined BPR and APR relief at £2.5 million per person. Qualifying assets up to that amount still receive full 100% relief. Assets above £2.5 million receive only 50% relief. This means the excess is taxed at an effective rate of 20%, which is the standard 40% Inheritance Tax rate halved by the remaining relief. HMRC’s guidance on Business Relief for Inheritance Tax sets out which assets qualify.
Worked Example: A £4 Million Family Business
Take a sole owner with a trading business valued at £4 million on death. The business fully qualifies for Business Property Relief, and the owner has no other significant assets.
Under the old rules: the full £4 million qualified for 100% relief. Inheritance Tax due on the business was £0.
Under the rules from 6 April 2026: the first £2.5 million still receives 100% relief and is not taxed. The remaining £1.5 million receives 50% relief, so £750,000 is added to the taxable estate. At 40%, that produces an Inheritance Tax bill of £300,000, where none existed before.
Now suppose a married couple owned the same business jointly, and both estates used their full £2.5 million allowance correctly. The combined £5 million allowance would cover the entire £4 million value, and the bill would return to £0. This is why using the transferable allowance correctly matters as much as the cap itself.
The £2.5 Million Allowance Is Transferable Between Spouses
Spouses and civil partners can transfer the allowance between them, including where the first death occurred before 6 April 2026. In practice, a couple can pass on up to £5 million in qualifying business or agricultural assets with full 100% relief, provided both estates use the allowance correctly.
The original October 2024 proposal set a lower, non-transferable £1 million cap. The final rules, confirmed in late 2025, raised the threshold to £2.5 million and made it transferable. The aim was to reduce the impact on smaller family businesses and farms.
Lifetime Gifting and the Seven-Year Rule
Gifting a qualifying asset during your lifetime, rather than holding it until death, can remove its value from your estate entirely. To achieve this, you must survive seven years from the date of the gift. The 2026 reform does not change this rule, but it now matters much more than before.
Gifts made between three and seven years before death benefit from taper relief. This reduces the Inheritance Tax rate on the gift on a sliding scale:
| Years between gift and death | Tax rate on the gift |
|---|---|
| Less than 3 years | 40% |
| 3 to 4 years | 32% |
| 4 to 5 years | 24% |
| 5 to 6 years | 16% |
| 6 to 7 years | 8% |
| 7 years or more | 0% |
Under the old unlimited relief, business owners had little reason to gift qualifying assets during their lifetime purely for Inheritance Tax purposes. That reasoning no longer holds above the £2.5 million threshold. Lifetime gifting is now a genuine planning question for anyone whose qualifying assets exceed the cap.
What Does Not Qualify for the Allowance
From 6 April 2026, AIM-listed shares qualify for 50% relief regardless of value, instead of the 100% relief available before. They do not use up the £2.5 million allowance. Assets held inside a pension do not qualify for Business Relief either, and from April 2027 most unused pension funds will fall into the estate under separate rules.
Trusts holding qualifying business or agricultural property also become subject to the new limits over time, not only trusts created after 6 April 2026.
Business Relief Investment Products
Some business owners and investors use portfolios of Business Relief qualifying investments as a separate estate planning tool. These portfolios hold shares in a range of smaller trading companies. They aim to qualify for BPR after two years, rather than the seven years required for lifetime gifts to fall outside an estate.
These investments now sit inside the same £2.5 million combined cap as any other qualifying asset. If you also own a qualifying family business through your own limited company, you need to consider both together against the single £2.5 million threshold.
The Next Change: Pensions From April 2027
A second, separate reform starts on 6 April 2027. Most unused pension funds and death benefits will then count towards the taxable estate for Inheritance Tax. This ends the common approach of leaving pension wealth untouched because it sat outside the estate.
For business owners affected by both changes, the total estate value is likely to be much larger than previously assumed. A full estate review that looks at both changes together gives a more accurate picture than treating them separately.
How to Prepare for the 2026 Inheritance Tax Changes
- Value your assets: establish the current market value of qualifying business or agricultural assets to see how far the estate sits above or below £2.5 million.
- Use both allowances: review whether you hold assets in a way that makes full use of the transferable allowance between spouses.
- Consider lifetime gifts: decide whether gifting assets above the threshold makes sense, given the seven-year rule and taper relief.
- Check your pension: plan for the April 2027 change that brings most unused pension funds into the estate.
- Review your will: the old assumption of unlimited relief may no longer reflect how your estate will be taxed.
Frequently Asked Questions
Does the £2.5 million cap apply per estate or per asset?
It applies per person, as a combined total across all qualifying Business Property Relief and Agricultural Property Relief assets in that person’s estate. It does not apply per individual asset or business.
Can I use my spouse’s allowance if they died before the rules changed?
Yes. The transferable allowance applies even where the first death occurred before 6 April 2026, provided the transfer is claimed correctly on the second death.
Does holding assets in a limited company change the outcome?
No. The cap looks at the value of the qualifying business or agricultural property, not the legal structure holding it. Shares in a qualifying trading company are assessed in the same way as directly held business assets. How you take income from your company each year is a separate question, which our guide to salary vs dividends for 2026/27 covers in detail. You should still plan both together.
Is there any way to avoid the cap entirely?
Not by simply restructuring ownership. The main options are lifetime gifting, making full use of the transferable spousal allowance, and reviewing which assets genuinely qualify for relief in the first place.
How Direct Assist Accountants Can Help
We work with business owners and landowners across Slough, Buckinghamshire and Berkshire. Through our high net worth tax planning service, we assess how the 2026 relief cap and the 2027 pension changes affect a specific estate. We then plan around both changes together, rather than reacting to each one separately.
Many clients also hold rental property alongside business or agricultural assets. Our landlord accounting service and our guide to Section 24 and the 2027 property tax changes cover the income tax side of property, which usually needs planning alongside Inheritance Tax.
If you hold business or agricultural assets and have not reviewed your position since the 2026 inheritance tax changes, get in touch for a free consultation and we will go through the numbers with you.
This article reflects UK Inheritance Tax rules as confirmed for the 6 April 2026 reforms. Rules and thresholds can change, and Inheritance Tax planning depends heavily on individual circumstances. For advice specific to an estate, consult a qualified accountant.