The changes in recent Budgets that affect the passing on of your estate are complex and far-reaching for business owners and farmers.

Changes affecting IHT from 2026 and beyond

The changes in recent Budgets that affect the passing on of your estate are complex and far-reaching for business owners and farmers.

Changes affecting IHT from 2026 and beyond are as follows:

• Agricultural Property Relief (APR) and Business Property Relief (BPR) will have a combined limit of £2.5m. Thereafter, 50% relief applies, giving an effective 20% tax rate from 6 April 2026.
• £2.5m APR/BPR rate is transferable.
• Unused pensions will fall into the scope of IHT from 6th April 2027.
• The IHT Nil Rate Band £325K and Additional Nil Rate Band £175K are frozen until April 2030.
• The rate of business property relief available will reduce in all circumstances for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM; meaning AIM shares will only get 50% relief.

Estates affected

Example

Husband & Wife have BPR/APR assets of £6m, pensions of £2m and other assets of £1m.

What happens on 2nd death now, in 2026 and in 2027, assuming a spousal transfer on the first death?

Inheritance Tax – 2^nd death now

Inheritance Tax – 2^nd death 6^th April 2026 (APR/BPR limit @£5m inc APR/BPR transferable allowance, 50% thereafter)

Inheritance Tax – 2^nd death after 6^th April 2027 (pension in the estate)

Payment of IHT by interest-free instalments

• From 6 April 2026, all BPR/APR assets will have a 10 year interest free payment option.
• Interest payable from the day after the property is sold.
• Trustees can also pay by interest-free instalments whilst the property remains in the trust/estate.

Tax planning strategies to minimise and protect against IHT

The first question to ask yourself is whether you have a viable business to pass on to your successors after settling the new IHT liability.

Review your succession plans

All farmers and business owners should review their succession plans and consider the following areas as part of their IHT strategy.

Life insurance

Insurance can offset risks whilst ensuring liquidity to meet IHT obligations without disrupting business operations.

Gifts

Making lifetime gifts has always been a popular IHT strategy. If the donor survives for seven years after the gift, the asset’s value is excluded from the estate for IHT purposes.

Trusts

Under current proposals, unrestricted BPR/APR is still available for lifetime gifts into trust up to April 2026.

Trusts have their own £2.5m allowance, so gifting into a trust will add a further £2.5m of available BPR/APR relief and remove future growth from the estate.

However, seek professional advice to ensure the cost vs benefit of a trust works for you and your family’s circumstances.

Management Buyout

A Management Buyout (MBO) to family members can help with IHT planning by allowing the current owners to progressively remove business value from their estate during their lifetimes, while potentially achieving a clean exit and some financial return.

Family Investment Company

Using a family investment company (FIC) or growth shares, you can potentially limit future IHT liabilities by passing value growth onto the next generation (and retaining control over assets).

Growth Shares

Growth shares allow a shareholder to separate a company’s future value growth from their estate. By creating a new class of “growth” shares with rights to future value above a set threshold and gifting them to family, the growth that occurs after the gift is excluded from the original owner’s estate for IHT purposes. The original “freezer shares” are retained by the owner, freezing their value at the time of the gift, while the new growth shares are gifted to beneficiaries.

Wills

Ensure you also review your Will and remember that a Will must reflect company structure, trusts, family arrangements, succession plans, and changes in the tax regime.

Planning windows are narrowing. Every business owner should now be reviewing their IHT exposure, succession plans, pension strategy, and BPR dependence.

The key message is to engage an advisor early and plan for IHT changes proactively.

Contact us today to speak to a tax expert about reducing your IHT bill and passing more of your wealth onto your family and loved ones.