The government has now released draft legislation introducing significant reforms to inheritance tax (IHT), with changes for business property relief (BPR) and agricultural property relief (APR) from April 2026 and for pensions from April 2027.

While the rules remain subject to change ahead of the final Finance Act, the draft provisions provide a clearer picture of the proposed regime.

The proposals mark a fundamental shift in how key reliefs will apply to business, agricultural and pension assets, with far-reaching implications for individuals, families and trustees who currently rely on these valuable exemptions.

New lifetime allowance for BPR and APR: what it means for IHT planning

Under the current regime, there is no cap on the amount of BPR or APR that can be claimed on qualifying assets. However, from 6 April 2026, each individual will only be able to claim up to £1m of combined APR/BPR at a rate of 100%, with 50% relief being available on the value of any qualifying assets in excess of this. In common with the IHT nil rate band, the £1m allowance will refresh every seven years for lifetime gifts, with the allowance being fixed until 6 April 2030 when it will increase by indexation.

This allowance will not be transferrable between spouses or civil partners, making careful estate and succession planning essential. In particular, individuals may wish to review existing wills and gifting strategies to ensure the full value of each person’s allowance is effectively utilised where possible.

Which assets will only qualify for 50% IHT relief?

Certain assets will only benefit from relief at 50% and will not be able to utilise the £1m allowance, including qualifying assets owned personally that are used in a business.

While shares listed on the Alternative Investment Market (AIM) could previously qualify for BPR at 100%, with effect from 6 April 2026, relief will only be available at 50% assuming all other qualifying conditions have been met.

New IHT instalment payment options

One welcome introduction in the draft legislation is the extension of interest-free instalment payments over 10 years for IHT liabilities related to qualifying BPR and APR property. This measure will be particularly helpful in cases where beneficiaries inherit illiquid qualifying assets, such as trading businesses or farmland, and would otherwise face pressure to sell valuable family assets to meet an immediate IHT liability.

How pre-30 October 2024 transfers can still benefit from 100% BPR/APR

The draft legislation confirms that lifetime transfers of qualifying assets made before 30 October 2024 will continue to benefit from the full 100% BPR/APR, even if the donor dies after 6 April 2026.

Complex changes to trusts

The treatment of trusts under the new rules is particularly complex and highly dependent on timing and asset types. The previously proposed measure to aggregate shareholdings across multiple trusts established by the same settlor for valuation purposes has been withdrawn, providing welcome clarity and preserving the ability to assess each trust independently under the IHT regime.

Existing trusts (Pre-30 October 2024):  Trusts holding qualifying APR/BPR assets on 29 October 2024 will automatically receive their own £1m allowance, provided that the property still qualifies for 100% relief under the new rules (eg unquoted shares in a trading company). However, trusts that only held assets qualifying for 50% relief under the new rules (eg shares listed on AIM) at this point will not receive a £1m allowance.

Trusts created before 30 October 2024 will fall under the new rules from their first 10-year anniversary after 5 April 2026. The calculation of this first charge will benefit from relief under the “old rules” for time periods before 6 April 2026, when the new rules came into effect.

With careful planning, trustees may have a valuable opportunity to restructure or extract qualifying assets before the trust’s next 10-year anniversary in a tax-efficient manner to take advantage of the current, more generous relief framework.

New trusts (on or after 30 October 2024): A settlor is only entitled to one £1m allowance across all the trusts that they have created on or after 30 October 2024, which is allocated in chronological order until £1m of qualifying property has been settled. Once the £1m allowance has been fully allocated, no further relief will be available for subsequent trusts they establish.

Changes to pensions from 6 April 2027: what you need to know

From 6 April 2027, most unused pension funds and death benefits will fall within the scope of IHT, regardless of whether scheme trustees or administrators have discretion over the distribution of any death benefits.

An unexpected development 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 change could have a considerable impact on business owners who currently hold trading premises or other qualifying assets within pension structures. As a result, individuals may wish to review and potentially restructure their pension arrangements to ensure they continue to support wider estate and tax planning objectives in the most efficient way.

How our private client services team can help

For individuals whose business or agricultural assets are likely to exceed the new £1m lifetime relief allowance, these reforms could lead to a substantial increase in IHT exposure from 6 April 2026.

There remains a valuable window of opportunity ahead of April 2026 to review estate and succession plans and explore planning strategies that could help mitigate increased IHT exposure under the proposed rules.

For further guidance on how these proposed changes could impact personal estate or trust arrangements, please contact an RSM adviser or a member of our private client services team.