On 6 April 2026, one of the most significant reforms to Inheritance Tax reliefs since 1992 took effect. The 100% exemption from IHT that has long protected qualifying business and agricultural assets from the 40% charge is no longer unlimited. If you run, own, or advise a family company or farming enterprise with assets worth more than £2.5 million, your estate planning needs an urgent review.
This post sets out exactly what changed, who it hits hardest, and what you should be doing now.
What Changed on 6 April 2026
Under the old rules, Business Property Relief (BPR) and Agricultural Property Relief (APR) provided 100% relief on qualifying assets with no upper limit. A business owner dying with £10 million of qualifying shares faced zero IHT on those assets. That position no longer exists.
From 6 April 2026, under legislation contained in Finance Act 2026, a combined £2.5 million allowance applies to the total value of business and agricultural property qualifying for the 100% rate of relief. Assets above that threshold attract only 50% relief — meaning an effective IHT rate of 20% (50% of assets, charged at 40%) on qualifying property in excess of the cap.
The full policy detail published by HMRC confirms the key mechanics. The £2.5 million allowance is a single combined pot — not £2.5 million for BPR and a further £2.5 million for APR. It covers both relief types together.
The Maths: What the Tax Bill Actually Looks Like
Consider an owner-managed trading company valued at £5 million, wholly owned by an individual with no other qualifying assets. Under the new rules:
- First £2.5 million: 100% BPR — zero IHT
- Next £2.5 million: 50% BPR — £1.25 million is chargeable at 40% = £500,000 of IHT
Add in the standard nil-rate band (£325,000) and, where applicable, the residence nil-rate band (£175,000 if a main residence passes to direct descendants), and the numbers shift slightly — but the core point stands. A business worth £5 million that previously attracted nil IHT will now generate a six-figure tax bill.
HMRC estimates up to 1,100 estates across the UK will pay more IHT in 2026-27 as a direct result of this change. That is a small number in absolute terms, but the tax involved is not small: £140 million net in year one, rising to £295 million per year by 2030-31.
Spouse and Civil Partner Transfers: The £5 Million Combined Allowance
The one material concession built into the new regime is transferability between spouses and civil partners. Any unused portion of the £2.5 million allowance on the first death can be transferred to the surviving spouse, in exactly the same way as the nil-rate band has operated for years.
Critically, the government confirmed on 23 December 2025 that if the first spouse or civil partner died before 6 April 2026, it will be assumed they had the full £2.5 million allowance available for transfer. This is a significant transitional concession — it means bereaved spouses who are still alive today can potentially access a combined £5 million allowance, even though BPR/APR reform did not exist when their partner died.
Combined with both nil-rate bands (£650,000) and both residence nil-rate bands (up to £350,000), a couple could in principle pass on up to £6 million tax-free on second death. The specific calculation depends on individual circumstances, asset composition, and the extent to which each allowance has previously been used.
AIM Shares: A Separate and Immediate Hit
Alongside the cap, Finance Act 2026 makes a separate change that will hit investors in AIM-listed shares and other shares designated as ‘not listed’ on recognised exchanges. BPR for these shares is reduced from 100% to 50% in all cases — not just above the £2.5 million threshold, but from the first pound.
This is a significant change for those holding AIM portfolios as part of an IHT planning strategy. The old approach of holding qualifying AIM shares for two years to achieve 100% BPR and thus pass them outside the estate tax-free no longer works as intended. You will still get 50% relief after two years, but the effective IHT rate on these holdings is now 20% rather than nil.
If you or your directors hold AIM shares specifically structured for IHT purposes, those portfolios need remodelling now. The investment thesis has changed materially.
Trusts: The 10-Year Anniversary Trap
The reforms do not stop at estates and lifetime transfers. Trusts holding qualifying agricultural or business property are also caught, with the £2.5 million allowance applying separately at trust level.
More technically, the method for calculating IHT on trust exit charges has changed. All exit charges will now be calculated based on unrelieved values, regardless of whether the exit takes place before or after the first 10-year anniversary. This standardises the approach but in practice means higher exit charge calculations for trusts holding large qualifying asset portfolios.
If you are a trustee or beneficiary of a discretionary trust holding family company shares, business property, or farmland, and that trust is approaching a 10-year anniversary, get advice now. The calculation basis has shifted and the exit charge exposure may be higher than previously modelled. HMRC’s consultation on settled property ran in early 2025 and the responses have been factored into the final legislation.
The Instalment Option: A Cashflow Tool CFOs Should Understand
One genuinely helpful change buried in the reforms is the extension of the 10-year interest-free instalment option. Previously, paying IHT by annual instalments over 10 years was available for some categories of qualifying property but not uniformly. From 6 April 2026, all property that qualifies for APR or BPR — including the element charged at 20% above the £2.5 million threshold — can be paid by instalments.
This matters because the IHT liability above the cap will often arise in respect of illiquid assets: private company shares, farmland, commercial property used in the business. Forcing a sale to fund an immediate IHT bill is exactly the kind of outcome the instalment option is designed to avoid.
If you are advising an estate or planning your own succession, model the instalment route explicitly. For a £500,000 IHT liability, that is £50,000 per year over 10 years — which a business generating reasonable profits can often absorb without a forced sale.
Lifetime Gifts: The Seven-Year Rule Still Applies
The cap on 100% relief applies not only to estates on death, but to chargeable lifetime transfers — gifts or settlements into trust. The transitional rules are specific: if a lifetime gift was made on or after 30 October 2024 (the date of the original Autumn Budget announcement) and the transferor dies on or after 6 April 2026 within seven years of making the gift, the new rules apply.
This means that accelerated gifting strategies put in place after Autumn Budget 2024 with the expectation of carrying forward the old unlimited 100% relief will not work as anticipated if death occurs within seven years. The £2.5 million cap will be applied retrospectively on death.
Review any significant lifetime gifts made after 30 October 2024. If the combined value of gifted qualifying assets exceeds £2.5 million and the donor is alive, the exposure is live and needs planning around it now.
Six CFO Action Points
- Value the qualifying assets. Get a current professional valuation of all assets that would attract BPR or APR. You cannot plan effectively without knowing whether you are above or below the £2.5 million threshold. For private companies, shares need HMRC-defensible valuations, not back-of-envelope estimates.
- Model the spouse allowance transfer. If your client or principal is married or in a civil partnership, run the numbers on the combined £5 million allowance. This can make a material difference and, for the first death before 6 April 2026, the transitional rules are generous.
- Review AIM share portfolios held for IHT purposes. The 100% BPR argument for AIM shares is gone. Reassess whether the risk/return profile of those holdings still justifies the structure now that IHT efficiency has halved.
- Audit trust structures for upcoming 10-year anniversaries. Recalculate periodic and exit charges using unrelieved values. If the next 10-year anniversary falls in the next two to three years, get updated advice now.
- Map any post-30 October 2024 lifetime gifts. Identify whether any significant qualifying asset transfers were made after the Budget announcement and model the seven-year PET exposure under the new cap.
- Build the instalment option into cashflow projections. For any estate with a likely IHT liability above the cap, include the 10-year interest-free instalment route in succession cashflow modelling. It preserves the business while satisfying HMRC.
Perspective: Who This Actually Affects
HMRC’s own data is instructive here. In 2021-22, 93% of APR claims involved assets below £2.5 million. The median value of qualifying agricultural property in estates was £486,000. For BPR, 96% of claims were below £2.5 million, with a median value of £200,000.
So the change targets a narrow but wealthy cohort. As HMRC notes, just 117 estates in 2021-22 claimed agricultural property relief above levels that would have triggered the cap, accounting for 40% of the total Exchequer cost of APR. That concentration is what makes the reform politically defensible — and practically lethal for those it hits.
If your business or farm estate is in that top tier — and many successful owner-managed businesses are — the cost is real and the planning window is already narrowing. The seven-year clock on lifetime gifts has been running since October 2024.
Get Advice Now
The new APR and BPR regime is live. There is no grace period, no soft landing, and no indication that the government will revisit the cap upwards before the next Budget. If your estate or your client’s estate contains qualifying business or agricultural assets worth more than £2.5 million — or is approaching that level — the position needs reviewing now.
At Tanous, we work with owner-managed businesses and their advisers on complex tax matters including succession planning, IHT structuring, and the interaction between business value and personal estates. If you want a structured conversation about how the new BPR and APR rules affect your position, get in touch with Mark.