How HNWs should be preparing for upcoming inheritance tax changes
April 2026 will see what is, arguably, the biggest shake-up of the UK's inheritance tax regime in decades. Here’s what you need to know
Changes to the UK’s inheritance tax (IHT) rules will come into force in April 2026, seeing relief on some assets reduced, while gifting and trusts will also be affected. These changes will likely have a significant impact on IHT and succession planning.
As Harry Bell, director of financial planning at Charles Stanley, part of Raymond James Wealth Management, points out, “IHT planning is highly personal, with individuals each having their own family dynamics and objectives to cater to.”
Here’s everything you need to know about the new IHT rules that will need to be navigated.
Land and business assets
For those with land and business investments, the biggest change is to Agricultural Property Relief (APR) and Business Property Relief (BPR).
Until now, families could pass on agricultural assets free of inheritance tax regardless of their value, but from 6 April, the individual threshold will be £2.5 million. Assets above this threshold will qualify for 50 per cent relief, so will be subject to an effective IHT rate of 20 per cent (as opposed to the standard 40 per cent). The threshold had originally been set at £1 million, as announced by chancellor Rachel Reeves during the 2024 Autumn Budget. However, it was raised last December following backlash from farmers and rural campaigners.
“The reforms don’t dismantle agricultural relief, but they do expose farms to tax bills they’ve never had to fund before – often without spare cash to do so,” warns Obi Nnochiri, head of private client consultancy at St James’s Place. This is likely going to create funding risks on death for estates that are land-rich but cash-poor. In the 2024-25 tax year, 21 per cent of farms in England failed to make a profit, according to UK government data.
Similarly, only the first £2.5 million of business assets will be eligible for 100 per cent IHT relief. “This is a major shift for founders who assumed their businesses could always pass IHT‑free,” says Nnochiri.
For entrepreneurs, the change could impact how they scale, he adds. Once a company’s value exceeds the threshold, “IHT becomes a cash flow and succession issue, not just a technical one”. The threshold means that a couple will be able to pass on up to £5 million of assets between them. This is on top of the tax-free individual allowance of £325,000, which has been frozen until 2031.
Alternative Investment Market shares
As it stands, shares held in companies listed on the Alternative Investment Market (AIM) – London’s junior stock market – are eligible for 100 per cent inheritance tax relief if they’ve been held for at least two years at the time of death. This relief is dropping to 50 per cent from 6 April. As with the APR and BPR threshold, AIM shares would effectively be hit with a new 20 per cent tax.
AIM-listed companies are less liquid and more volatile than those on the main stock market. Investing in the AIM market can be quite risky – companies tend to be at an early stage and are more prone to failure – but it can offer high-growth opportunities and lead to greater returns for those who can stomach the volatility.
“Many active investors have some level of AIM investments, and they can play a useful role in a diversified portfolio for those willing to take a higher risk,” explains Lisa Spearman, partner at Mercer & Hole.
Nnochiri adds that “AIM is no longer an IHT ‘escape route’”. It has now become “a risk asset with a tax discount”. The question for investors is whether the risk of carrying AIM shares is worth the tax saving.
Gifts and trusts
Gifting AIM shares and agricultural and business assets is a popular and easy way to slim down an estate and reduce an inheritance tax bill. A gift made before the start of the upcoming tax year will still qualify for the full relief. However, it’ll only be exempt from IHT if the donor doesn’t die within seven years of making it. This is widely known as the ‘seven-year rule’.
While a gift can be given directly, there’s always potential for this to cause friction between family members. Trusts are designed to protect and control the distribution of assets; Spearman advises setting up a trust and transferring any qualifying assets into it before the start of the upcoming tax year to make use of the 100 per cent IHT relief.
Trust rules are changing as well. Trusts set up before 30 October 2024 (the day of that year’s Autumn Budget) will each have their own £2.5 million allowance from 6 April. Those set up after will not – the £2.5 million cap will apply to the combined value of agricultural and business assets held across multiple trusts.
Be prepared and do your research
The upcoming changes are likely to give families an IHT planning headache. The rules around IHT can be complex and the administration involved can be time-consuming.
“No two estates are the same and there’s no one-size-fits-all approach, so succession plans will need to be tailored to avoid a large tax bill,” advises Bell. It’s important to seek expert advice so wealth can be passed on to future generations in the most tax-efficient way possible.
He adds: “If you’re in any doubt, make sure you consult a regulated financial planner to ensure you aren’t making any mistakes that will unnecessarily increase your estate’s tax burden.”
