Estate planning and inheritance tax – where are we now?

With two major Budgets, concessions and U-turns behind us, the key question for individuals and families is: where does estate planning and inheritance tax stand?

When Rachel Reeves stood up to announce the Budget in October 2024, there had been rumblings (not uncommon in a lead up to a Budget) about changes to inheritance tax (IHT). However, many people may not have expected the sweeping changes that were announced.

There then followed protests and campaigning, mainly by farmers, which resulted in slight concessions in the 2025 Budget. After more protests there was a further, more major concession, in a Government announcement just before Christmas 2025. So, what does this mean for estate planning and inheritance tax?

Nil Rate Band and Residence Nil Rate Band

These have been frozen at £325,000 and £175,000 respectively until April 2031 (previously April 2028).

This is expected to increase the number of estates paying IHT by more than £4,300 and raise at least an additional £465M.

Agricultural Property Relief and Business Relief 

From 6 April 2026, the 100% relief will now only apply to qualifying assets valued up to £2.5M. For estates exceeding this threshold, the Agricultural Property Relief (APR) and Business Relief (BR) rate will drop to 50%, giving an effective rate of IHT for those assets of 20%.

The allowance of £2.5M for APR and BR is combined. Therefore, if a person owns a combination of qualifying agricultural assets and business assets then the 100% relief will apply to all those assets and any value of agricultural or business assets above £1M will be taxed at the effective rate of 20%.

The legislation says that the allowances for APR and BR are transferable between spouses, very much like the existing Nil Rate Band. However, clarification is being sought to clarify whether or not the qualifying assets do need to have been actually owned by the deceased spouse in order to qualify for the transferable element.  So, it is “watch this space” at the moment.

IHT on agricultural property and business property will now be able to be paid by instalments over 10 years interest free.

Alternative Investment Market

Shares held on the Alternative Investment Market, which previously qualified for 100% relief from IHT, will now only qualify for 50% relief.

Pensions

From 6 April 2027, most unused pension funds and death benefits will be included within the value of a person’s estate for IHT purposes.  Therefore, pension funds will become taxable and their use for estate planning needs to be considered.

Where are we now?

We have seen significant changes to IHT and so it is even more important to keep affairs under review.  So, it is time to dust off your will and make arrangements for a comprehensive review.

Our solicitors and legal executives are very easy to talk to and can help you with any size of estate, from complex cross-border estates to small estates with no inheritance tax requirements. We are recommended by The Legal 500 and, over the years, have advised second and third generations of the same family on creating a will, trusts and inheritance tax planning.

Our Legal 500-rated wills, trusts & probate team offer friendly but practical advice on estate planning and inheritance tax in light of these potential changes. Please do get in touch.