At the Autumn Budget 2024, the government announced major upcoming changes to inheritance tax (IHT). Following months of lobbying and consultation, the draft legislation confirms that from 6 April 2026, business property relief (BPR) and agricultural property relief (APR) will be restricted, and, from 6 April 2027, most unspent pensions funds will be brought into the scope of IHT.

The government has seemingly rejected calls for significant changes to be made to the proposals or to delay their introduction. The draft legislation largely mirrors the original proposals, and whilst there are a few welcome relaxations, the new rules will introduce additional complexity. Though it is still possible that the final legislation may change, as the draft legislation is now subject to technical consultation for an 8-week period, this normally represents an exercise in tinkering around the edges, rather than a substantial rewrite.

Unsurprisingly, the government concedes that the changes will lead to additional administrative time, record keeping responsibilities and cost for taxpayers and pension scheme administrators. One-off costs to pension scheme administrators have been estimated at £60m, whilst ongoing costs are estimated at £5m each year, both of which may ultimately be passed on to consumers. These changes are also expected to have a significant operational resourcing impact on HMRC. Although the full cost has not yet been determined, current estimates for the APR and BPR changes are £7.5m. In addition, HMRC acknowledges that it will need to increase staffing, which has proven a challenge for many years. It would probably be preferable for HMRC and taxpayers alike if more time was taken to address the practical challenges of these new IHT rules, but it seems clear that the government is determined to push ahead with its introduction on 6 April 2026 and 6 April 2027.

The government expects to retarget IHT towards the wealthiest estates, suggesting that the APR/BPR changes would impact 0.3% of estates and the pension changes impacting 8% of estates. The APR and BPR changes are expected to raise around £0.5bn in additional tax receipts in 2027/28, with the pension changes expected to raise around £0.6bn in the same period, although both estimates are subject to behavioural changes.

After decades of tax planning under the existing framework, taxpayers now have limited time to set their affairs in order ahead of the changes. A perhaps unexpected development from legislation day is that assets held within pension schemes, once brought into the scope of IHT, will not be able to benefit from APR or BPR. This could prompt some substantial restructuring for certain taxpayers, to improve IHT efficiency, as it was previously relatively common tax planning for business premises to be owned by the owners’ pension fund.

Estates or trusts that become subject to increased IHT charges from 6 April 2026 may naturally be asset rich and cash poor, and struggle to find the necessary liquidity to pay the tax that becomes due.

In these circumstances, payment of tax by 10 equal annual instalments is allowed as an exception to the general rule. By way of some further relief, the interest free instalment payment option will be extended to all APR and BPR qualifying property. Whilst this relaxation may be called upon by some who, prior to the Autumn Budget 2024, would not have expected to pay IHT, it should be noted that once property is sold, either in whole or in part, tax and interest become immediately due.

Whilst easing cashflow, the instalment option increases risk for personal representatives (PRs), as should an asset be transferred to a beneficiary who fails to pay the tax, the PRs remain liable. It may be that a natural result of these changes is that estates remain in administration for much longer, as we can also likely expect an increase in HMRC checking valuations in detail that may not previously have been necessary, potentially adding cost and frustration for beneficiaries at an already difficult time.

Just as the government breaks for the summer recess, taxpayers and their advisers will be spending the weeks ahead considering the detail of the draft legislation. Taxpayers should be reconsidering their IHT position in light of these changes, and would be wise to obtain valuations and reassess tax planning strategies they may have in place as soon as possible.