Back in October 2024, Rachel Reeves used her first Autumn Budget to announce a cap on Business Relief (BR) and Agricultural Relief (AR). At that time, individuals could claim up to 100% relief from Inheritance Tax on qualifying assets.
While the rules differ from those originally laid out in the chancellor’s Budget speech, the changes have now come into effect.
Keep reading to find out how they might affect you in this tax year and beyond.
Changes now in effect could mean you need to revisit your estate and succession plans
Before 6 April 2026, you could pass on certain qualifying assets on death completely IHT-free, thanks to BR and AR, which provided 100% relief on:
- Agricultural property (land or pasture used to grow crops or rear animals)
- Business assets (including shares, property, and shared buildings and machinery).
In 2024, the chancellor announced a new cap, after which the relief would apply at just 50%. While Reeves originally planned to set the cap at £1 million, backlash to the move resulted in a softening of the policy prior to implementation.
The rule change, which came into effect for the 2026/27 tax year on 6 April, now applies 50% relief on qualifying assets that exceed the amended cap of £2.5 million.
This means the first £2.5 million of eligible agricultural and business assets you hold will be IHT-free on your death, with the rest liable for IHT at a reduced rate of 20% (half the standard 40% rate). This could have important ramifications for your estate and succession plans.
If your estate is large, tax changes could require an estate planning reset
Previous rules allowed farmers, landowners, and business owners to preserve the value of their estates and pass businesses between generations without facing large tax burdens. This may no longer be the case for those with large estates, so the first question to ask yourself is whether the rule changes affect you.
The cap applies per individual, so a couple can currently pass on up to £5 million of qualifying assets between them before IHT applies. This is on top of other allowances, including the nil-rate band (which sits at £325,000 for the 2026/27 tax year).
If your estate falls below this threshold, little will change as a result of the new rules.
For estates beyond this amount, a new estate planning approach may be required to avoid the need to sell business or agricultural property to settle an IHT liability.
Financial planning can help you think about the next steps to take in light of the new rules
The first important step is to understand the changes and their potential impact on you. Professional financial advice can help here.
There are ways to mitigate the impact of these rule changes. Here are three of them.
1. Consider life insurance
Life insurance is an important estate planning tool for those with large estates. The payout from a plan can be used to cover an IHT liability, preventing those you leave behind from having to foot an unexpected bill.
Financial planning can help you find the most cost-effective way of providing cover for a large estate. For example, you might choose to break your cover up into several smaller fixed-term plans to cover different time frames rather than taking out a single policy with a large sum assured.
2. Remember the spousal exemption
You can transfer any unused portion of your £2.5 million allowance to your spouse on death, so be sure to factor this into your planning to take maximum advantage of both allowances.
Careful planning is required to ensure a potential IHT bill can be met, especially on second death.
3. Revisit succession plans now
As a business owner, it’s easy to find your wealth – both personal and business – tied up in your company. Following the new rules, an unexpected tax bill could lead to short-term financial strain, forcing the sale of shares or upsetting a carefully built succession plan.
Again, life insurance (and other key person protections) could prove important here, allowing shares to stay within a family, for example.
Get in touch
The new rules are now in force, so if you have any questions, please email hello@globeifa.co.uk or call us on 020 8891 0711 to discuss how Globe IFA’s expert financial advisors can help you manage the changes and your long-term financial plans.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning or tax planning.
