Draft legislation for tax changes published: what it means for inheritance tax, agricultural property relief and business property relief

This month the government released its draft legislation on the proposed changes to agricultural property relief (APR), business property relief (BPR) and taxation of pensions for inheritance tax (IHT) purposes, along with a summary of the responses to its consultation.

The changes to the APR and BPR rules are due to take effect from 6 April 2026, and the changes to pensions are due to take effect from 6 April 2027. See our previous article Spotlight on Inheritance Tax (IHT) changes – CT, for an overview of these changes.

The draft legislation has brought no fundamental changes to the previously announced policies. The government are broadly proceeding with the proposals and changes as announced by Rachel Reeves in her Autumn Statement last year, with a couple of minor tweaks to the rules. See below for further details.

APR/BPR Changes – Effective from 6 April 2026

The £1million allowance for APR and BPR will be index linked from 2030/31.
Included within the new rules is an exemption from IHT for Scottish Agricultural leases to ensure that newer equivalent Scottish leases are also exempt from IHT.
“Anti-fragmentation” anti-avoidance measures, to cover the scenario where an individual sets up multiple trusts for planning purposes, have not been brought in. Where multiple trusts are set up by the same person, the £1m allowance will be allocated on a chronological basis across the trusts.

Pension Changes – Effective from 6 April 2027

In terms of the IHT pension liability which falls due, the personal representatives will be liable to report and pay any IHT due on any unused pension funds or death benefits, rather than the administrators of the pension scheme. If there is sufficient cash in the free estate (i.e. outwith the pension pot), this can be used to settle the IHT which falls due on the pension(s).
From 6 April 2027, death in service benefits payable from a registered pension scheme will be outside the scope of IHT.

Time to review your position?

The changes to the APR/BPR rules are only seven months away. If you haven’t already done so, it’s important to take stock and review your IHT position and consider the impact that these changes will have on you, your family and/or your business(es).

A simple exercise, such as quantifying your IHT exposure as it stands under the old rules and calculating your potential IHT exposure when these new rules come into play, can provide clarity in terms of the potential IHT which is at stake. This will enable you to make informed decisions, as well as help you to make and put in place a plan in respect of your estate and manage your potential IHT exposure.

Key issues to be aware of and to consider

Unlike the IHT nil rate band and the residence nil rate band, the £1m allowance is not a transferrable allowance. It can’t be passed onto the surviving spouse if not used during lifetime or death. Therefore, consideration should be given to reviewing current ownership holdings and Will arrangements to ensure that your Wills are to up to date and to take into account the changes to the IHT rules.

The £1million IHT allowance refreshes every seven years. It’s important to keep a record of any lifetime gifts of APR- and BPR-qualifying assets to help you make an informed decision in the future and ensure that you maximise and make full use of your £1m allowance where appropriate and applicable.

The ability to pay the IHT which falls due by equal annual instalments over 10 years interest-free will be extended to all property which is eligible for APR or BPR. Consideration should be given to this when it comes to cashflow and financial planning for the family and business to ensure that you have sufficient funds or generate sufficient income to settle any IHT liabilities which may fall due.

For those looking to transfer assets which fully qualify for APR and/or BPR, it may still be possible to transfer these assets into a Trust prior to the 6 April 2026 and be assessed under the current rules. Post 6 April 2026, the £1m allowance will be in play, and therefore this will have an impact on the value of assets which can be transferred into a Trust without triggering an IHT charge. For those looking to set up Trusts prior to 6 April 2026, you should consider the impact that these changes will have on your estate and IHT position, as well as consider the longer-term implications of funding any future IHT liabilities that may arise for the Trust.

How we can help you?

The personal tax team at CT are on-hand to help you navigate your way through these changes, assess the impact that they will have on you, your family and your business and discuss what options may be available to you to mitigate these changes.

If you have any questions, or wish to discuss your circumstances in further detail, please contact your usual CT contact or one of our IHT specialists: