Major inheritance tax (IHT) reforms took effect on 6 April 2026 under the Finance Act 2026. The 40% headline rate is unchanged, but significant restrictions to Business Property Relief (BPR), Agricultural Property Relief (APR) and AIM share relief have reshaped estate planning for business owners, farmers and investors. The nil-rate band thresholds remain frozen at their 2020 levels and are now fixed through to April 2031.
Verdict — April 2026IHT headline rate: 40% — unchangedNil-Rate Band (NRB): £325,000 — frozen to April 2031Residence Nil-Rate Band (RNRB): £175,000 — frozen to April 2031 (total £500,000 for direct descendants; £1m per couple)BPR and APR 100% relief: capped at £2.5m per individual from 6 April 2026 (£5m per couple, transferable). Assets above the cap: 50% relief — effective 20% IHTAIM shares: 100% relief removed — now 50% relief only, effective 20% IHT on deathPension pots: brought into IHT estates from April 2027HMRC estimates ~1,100 estates will pay more tax due to BPR/APR changes
The nil-rate bands — frozen until 2031
| Allowance | Amount | Who qualifies | Frozen until |
|---|---|---|---|
| Nil-Rate Band (NRB) | £325,000 | All individuals | April 2031 |
| Residence Nil-Rate Band (RNRB) | £175,000 | Main home to direct descendants | April 2031 |
| Combined NRB + RNRB | £500,000 | Individuals leaving home to children/grandchildren | April 2031 |
| Combined (married couple) | £1,000,000 | Couples, full transferable NRB and RNRB used | April 2031 |
The NRB has been frozen at £325,000 since 2009. The OBR forecasts IHT receipts will rise from £8.4 billion in 2024/25 to £14.7 billion in 2030/31, driven by frozen thresholds against rising asset values. The RNRB begins tapering at £2m of estate value.
The new BPR and APR cap — what changed on 6 April 2026
Until 5 April 2026, qualifying business and agricultural assets could pass entirely free of IHT with no upper limit. The change: announced Autumn Budget 2024 (original £1m cap), revised Budget 2025 (transferability added), increased to £2.5m on 23 December 2025, and enacted in the Finance Act 2026.
| Scenario | Before 6 April 2026 | From 6 April 2026 |
|---|---|---|
| Business worth £2m (individual) | 0% IHT — 100% BPR | 0% IHT — within £2.5m cap |
| Business worth £4m (individual) | 0% IHT — 100% BPR | £1.5m above cap: effective 20% IHT = £300,000 |
| Farm worth £5m (couple) | 0% IHT — 100% APR | 0% IHT — within £5m combined couple cap |
| Farm worth £8m (couple) | 0% IHT — 100% APR | £3m above cap: effective 20% IHT = £600,000 |
AIM shares — the end of full relief
From 6 April 2026, AIM holdings receive only 50% relief regardless of value, creating a permanent effective IHT rate of 20% on death. This change is separate from the £2.5m BPR cap and applies to all AIM holdings irrespective of total value. Investors who structured portfolios specifically for IHT planning through AIM should review their position urgently.
Pension pots — the April 2027 change ahead
The Finance Act 2026 makes provision for the next major IHT reform: from April 2027, most inherited pension pots will be included in a taxable estate. Currently, defined contribution pension pots pass outside the estate free of IHT. This will change. Regulated IFA firms listed in the Kaeltripton Financial Index can advise on pension drawdown strategies and estate planning in light of these changes.
Worked example — a business owner estate, May 2026
Individual dying May 2026: main home £600,000 (to adult children), cash/investments £300,000, trading business £3,500,000.
| Asset | Value | Relief | Taxable |
|---|---|---|---|
| Main home | £600,000 | NRB £325k + RNRB £175k = £500k | £100,000 |
| Cash/investments | £300,000 | NRB already used | £300,000 |
| Business (first £2.5m) | £2,500,000 | 100% BPR | £0 |
| Business (above cap) | £1,000,000 | 50% BPR | £500,000 |
| Total taxable | £900,000 | ||
| IHT at 40% | £360,000 |
Under pre-2026 rules, the full £3.5m business would have received 100% BPR and total IHT on this estate would have been approximately £160,000 on the home and cash only. The new rules increase the liability by £200,000. Instalments over 10 years without interest are available for the qualifying BPR/APR portion.
Legitimate ways to reduce your IHT bill
- Annual gift exemption: £3,000 per year free of IHT. Unused allowance can be carried forward one year (maximum £6,000).
- Seven-year rule: Gifts made more than seven years before death are fully exempt. Taper relief applies 3–7 years before death.
- Spouse/civil partner exemption: All assets between UK-domiciled spouses pass free of IHT.
- Charitable giving: Gifts to registered charities are fully IHT-exempt. Leaving 10% or more of the net estate to charity reduces the rate on the remainder to 36%.
- Whole-of-life insurance in trust: Provides a lump sum to cover the IHT bill without adding to the taxable estate.
Making a will is the foundational step for any estate planning. Make a Will Online offers a regulated, cost-effective option for straightforward estates.
Related Guides
This article is for informational purposes only and does not constitute tax, legal or financial advice. IHT rules are complex and individual circumstances vary — always consult a regulated tax adviser or solicitor before taking any action.
Frequently asked questions
What is the inheritance tax threshold in 2026?
The nil-rate band is £325,000. With the RNRB of £175,000 (for a main home left to direct descendants), a single individual can pass up to £500,000 free of IHT. A married couple or civil partners can pass up to £1,000,000. Both bands are frozen until April 2031.
What changed with Business Property Relief in April 2026?
From 6 April 2026, 100% BPR is capped at £2.5m per individual (£5m per couple, transferable). Assets above this cap receive 50% relief — an effective IHT rate of 20% on the excess. Previously, 100% BPR was unlimited.
Do AIM shares still avoid inheritance tax?
No longer fully. From 6 April 2026, AIM shares qualify for 50% BPR only, not 100%. This creates a permanent effective IHT rate of 20% on AIM holdings at death. This change applies separately from the £2.5m BPR cap.
Are pension pots subject to inheritance tax?
Currently, defined contribution pensions pass outside the IHT estate. From April 2027, most inherited pensions will be included in the taxable estate. The Finance Act 2026 makes provision for this change.
How much does the IHT threshold freeze cost estates?
The OBR forecasts IHT receipts will rise from £8.4 billion in 2024/25 to £14.7 billion in 2030/31, driven primarily by frozen thresholds against rising asset values. The NRB has been unchanged since 2009.
Sources and verification
- Finance Act 2026 — BPR/APR cap (Section 65, Schedule 12); pension IHT provisions
- House of Commons Library CBP-10181 — APR/BPR changes; HMRC impact estimate ~1,100 estates (April 2026)
- House of Commons Library SN00093 — OBR forecasts: £8.4bn 2024/25, £14.7bn 2030/31 (April 2026)
- gov.uk — IHT thresholds publication; freeze extended to 2031 (Finance Act 2025 and Finance Act 2026)
- RSM UK — £2.5m cap and transferability analysis (December 2025)
- Armstrong Watson — 10 key tax changes April 2026 (AIM shares)
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