It’s old news now that Rachel Reeves has long had her eyes on inheritance tax (IHT) as an area for reform. The announcements in the last Budget have sharpened the focus by removing reliefs for businesses, including farmers and bringing your pension savings into your Estate when you die. So, are you ready for the IHT overhaul?
For years, the reliefs available under the system have been criticised for being overly generous to landowners and entrepreneurs. Therefore, from April 2026, we will see a significant change to both Agricultural Relief (AR) and Business Property Relief (BPR).
The government’s stated aim is to “widen the net” and make the system “fairer.” In practice, this means restricting the amount of relief available so that larger farming families and business owners shoulder a bigger portion of the IHT bill. Unsurprisingly, this has already triggered protests across the country, particularly from the farming community.
Business Property Relief: Entrepreneurs in the Firing Line
The farming community isn’t alone in feeling the squeeze. Business owners are also directly affected by the new restrictions on Business Property Relief (BPR).
Currently, BPR provides relief on qualifying business assets, including unquoted shares. For example, if you own shares in your family business with your spouse, children, or business partners, those shares can usually pass on death without triggering an IHT liability. It’s a cornerstone of the system, recognising that forcing beneficiaries to sell part of a business to fund an IHT bill could be hugely damaging.
From April 2026, however, the picture changes. BPR will now only offer 100% relief on the first £1 million of qualifying assets. Above that threshold, relief falls to 50%.
In practical terms, this means the effective tax rate on business assets exceeding £1 million increases to 20%. This is an improvement over the 40% tax on death for other assets; however, for owners of thriving SMEs, it represents a significant shift. A business worth £5 million, for example, could now face an IHT bill running into seven figures.
Agricultural Relief: Protecting Family Farms — Until Now
Under the current rules, agricultural property is eligible for relief at either 100% or 50%, depending on the type of property and the interest held. The effect is powerful: land, livestock, and farm buildings can effectively be passed on tax-free at death.
The reasoning behind this policy was simple. Without relief, families inheriting farms might be forced to sell land or assets to meet the tax bill, undermining the long-term sustainability of farming businesses. Agricultural relief ensured that farms could be passed down intact, safeguarding not only family livelihoods but also food production and rural communities.
But from April 2026, the rules changed dramatically. The 100% relief will only apply to the first £1 million of qualifying assets. Importantly, this is not a per-person allowance it is a combined cap that covers both AR and BPR. Anything above the £1 million threshold will no longer be fully exempt.
And Then Comes the Pension Reforms
As if April 2026 wasn’t enough to contend with, there’s another significant change looming on the horizon: pensions.
From April 2027, unused pensions will become subject to IHT.
Currently, if you die with pension savings left in your pot (not occupational schemes), these funds are typically paid to your beneficiaries tax-free.
This has been one of the significant advantages of pensions, alongside the upfront income tax relief when making contributions. For years, we’ve been encouraged to save into private pensions not only as a way to secure retirement income but also as an efficient way to pass wealth down the generations.
Under the proposed reforms, that benefit is set to disappear. From 2027, unused pension savings will be treated as part of your estate for IHT purposes, to the extent they exceed the nil-rate band. That means, in many cases, they could attract a 40% tax charge.
So it’s back to the drawing board.
The challenge with taxes is that they often have an expiration date. Due to frequent changes in legislation, any previous plans must be re-examined regularly. Currently, any planning you may have done for Inheritance Tax (IHT) should be revisited.
You need to ask:
- What is my estate actually worth today?
- If something happened tomorrow, what IHT liability would my family face?
- How would that bill be paid?
- What planning can I do now to soften the impact?
Working with a tax adviser is essential. These are complex reforms, but the right strategy, whether through trusts, lifetime gifts, or alternative investment structures, can make a significant difference.
What Can You Do Now?
With six months until the relief changes in April 2026, and just over a year until the pension reforms bite, now is the time to take stock. The new rules are complex, but there are steps you can take to mitigate the impact:
- Review your estate: Understand where you stand today and project forward.
- Consider taking professional advice: Talking to the experts will give you confidence.
- Spreading payments: HMRC allows IHT to be paid in instalments in some instances, helping avoid the need for fire sales. Find out for yourself here.
- Revisit succession planning: Whether for your farm, your business, or your pension savings, early planning is now more critical than ever.
At Myers Clark, we are serious about you and your ambitions. The best defence is preparation. By acting now, you can protect your family’s interests and give your farm, your business, and your retirement savings the best chance of surviving into the next generation.
If you are working with us and want to discuss IHT, please get in touch with your normal manager in the first instance. If you are not yet working with us and you need help, get in touch with us by emailing enquiries@myersclark.co.uk and find out who we help.