IHT can apply to certain lifetime transfers/gifts and also on the value of an individual’s estate at the time of death. The IHT nil rate band is £325,000, with an additional £175,000 ‘residence nil rate band’ available in some cases for leaving the family home to direct descendants. For any value remaining after the nil rate bands and IHT reliefs and exemptions, the maximum rate of IHT remains at 40%.

The IHT nil rate band remains frozen at £325,000 for a further year until 2031. The residence nil rate band will also remain frozen at £175,000 until 2031.

The residence nil rate band continues to be withdrawn where an estate has a net value over £2 million.  The residence nil rate band is tapered away at a rate of £1 for every £2 above £2 million.

Where there has been no restriction on the residence nil rate band, a married couple will continue to have a combined IHT allowance of £1 million.

 IHT reliefs for business owners and farmers

The government is continuing with its plans to reform IHT agricultural property relief (APR) and business property relief (BPR) from 6 April 2026. Relief of up to 100% of the qualifying asset value is currently available, but from 6 April 2026, this 100% relief will be capped at up to £1 million of combined agricultural and business property. Thereafter, the available relief reduces to 50%.

From 6 April 2026, any unused APR or BPR allowance will be transferable to the surviving spouse or civil partner. This means that together, a couple may be able to pass on up to £3 million free of inheritance tax where their estates include agricultural and/or business property.

Also, from 6 April 2026, the BPR available on AIM shares and similar investments will simply reduce from 100% to 50%. The £1 million BPR allowance does not apply to AIM shares.

Care is needed when planning for these changes, as transitional rules mean that even gifting before 6 April 2026 will not necessarily achieve the desired effect. Please do talk to us about how best to organise your estate with business or agricultural assets.

Paying tax by instalments

The inclusion of more agricultural and business property within the IHT net inevitably means more tax is payable. From April 2026, the ability to pay IHT in interest-free instalments over 10 years will be extended to include all property which is eligible for APR and BPR.

Pension funds

From April 2027, the value of unused pension funds will be included in an individual’s estate at death, regardless of any efforts by individuals to write their policy into trust. This is to counter what the government perceived as an increasing trend of using pensions as a method for tax planning rather than for simply funding an individual’s retirement.