IHT Changes April 2027 UK: Pensions, AIM Shares & BPR/APR Cap Explained

The April 2027 IHT changes were announced by Chancellor Rachel Reeves in the Autumn Budget 2024 on 29 October 2024 and are expected to take effect from 6 April 2027, subject to the passage of the relevant Finance Bill. There are three main changes: (1) Pension death benefits brought into the IHT estate — from April 2027, unused drawdown pension funds and uncrystallised pension pots left on death will be included in the deceased's taxable estate for IHT purposes. Under current rules (applicable until 5 April 2027), pension pots sit outside the estate entirely and pass IHT-free to nominated beneficiaries at the discretion of pension trustees. The change reverses this long-standing position and introduces a mechanism by which pension providers become liable for paying IHT on the pension element of the estate. (2) AIM shares BPR halved — Business Property Relief (BPR) on AIM-listed shares is reduced from 100% to 50%. AIM shares that have been held for at least 2 years currently attract 100% BPR, completely removing their value from the IHT estate. From April 2027, only 50% BPR applies — creating an effective IHT rate of 20% on qualifying AIM portfolios (40% × 50% relief). (3) BPR and APR capped — Agricultural Property Relief (APR) and Business Property Relief (BPR) will be restructured: the first £1 million of qualifying business and agricultural property continues to attract 100% relief; above £1 million, the relief rate reduces to 50%. This affects farming estates, business owners, and AIM portfolios above the threshold.

From 6 April 2027, the value of unused pension pots (drawdown funds and uncrystallised pension savings) will be included in the deceased's taxable estate for IHT calculation purposes. The mechanics involve a novel two-stage process because the pension funds sit outside the estate legally (in the pension scheme) but must be counted within it for tax purposes: (1) The executor values the estate including pension values; (2) The executor notifies the pension provider of the IHT liability attributable to pension funds; (3) The pension provider becomes a 'liable person' responsible for paying the IHT attributable to the pension element — typically from the pension fund itself; (4) The remaining pension fund (after IHT) is then paid to the nominated beneficiary by the pension trustees. This creates a coordination challenge: the executor calculates the estate IHT position, but a third party (the pension provider) must pay a portion of it. Where there are multiple pension providers, each must be informed and each pays their proportion. The 2-year rule for pre-75 deaths (designation to a beneficiary within 2 years preserving income-tax-free status) continues to apply — meaning for deaths before 75, the beneficiary may receive the residual pension income-tax-free even after the pension fund has been used to pay IHT. For deaths after 75, income tax on drawdown payments continues to apply on top — creating a potential double-tax position. HMRC and the pension industry are in ongoing consultation about the mechanics, so the exact process may be refined before April 2027.

AIM (Alternative Investment Market) shares have for many years been a popular IHT planning tool: by holding qualifying AIM shares for at least 2 years before death, investors could remove the entire value of the portfolio from their taxable estate through 100% Business Property Relief (BPR). From 6 April 2027, this relief is halved to 50%, creating an effective IHT rate of 20% on qualifying AIM portfolios (the standard 40% rate × 50% residual exposure). For a £1 million AIM portfolio: under current rules, zero IHT. Under April 2027 rules: £200,000 IHT (40% × 50% = 20% effective rate). The investment case for AIM portfolios in IHT planning is therefore materially reduced but not eliminated — a 20% effective rate is still significantly lower than the standard 40% rate, and AIM portfolios can still offer meaningful IHT savings. However, AIM shares carry significant investment risk: the AIM market is less regulated and more volatile than the main London Stock Exchange; companies can delist or go bankrupt; the portfolio must be held for 2 years to qualify for BPR; and not all AIM shares qualify (the company must not be a trading company excluded from BPR, such as a property investment company). Investors currently holding AIM portfolios for IHT purposes should review their strategy before April 2027. Those who invested specifically for the 100% relief need to consider whether the 50% relief still justifies the investment risk and cost of management, or whether alternative strategies (lifetime gifting, life insurance, etc.) are more appropriate.

Under current rules (until 5 April 2027), qualifying business property attracts 100% BPR and qualifying agricultural property attracts 100% APR — no matter how large the value. A farm worth £10 million could be passed on IHT-free under APR. From 6 April 2027, a combined annual cap of £1 million of qualifying BPR/APR property will attract 100% relief; above £1 million, the relief rate reduces to 50%. The £1 million cap applies per individual — so married couples can each use £1 million (effectively £2 million combined) of qualifying property at 100%, with the balance at 50%. The cap applies to the combined value of all qualifying business and agricultural property — so a farmer with a £3 million farm and £500,000 of unlisted business shares would have £1 million at 100% (zero IHT) and £2.5 million at 50% (20% effective rate), generating an IHT liability of approximately £500,000. The IHT is payable over 10 years by instalments for qualifying property (under current IHTA 1984 s.227 business and agricultural property instalment relief), which softens the cash-flow impact but does not eliminate the liability. Planning considerations before April 2027 include: reviewing whether the estate can be restructured to maximise the £1 million allowance for each spouse; accelerating gifts of qualifying property (a PET, but if the donor survives 7 years it is IHT-free); reviewing whether lifetime transfers can bring the estate below the threshold; reviewing shareholder agreements and business succession planning documents to accommodate the new liability.

There are several planning actions that individuals with significant estates should consider before 6 April 2027. For pension holders: review and update nomination (expression of wishes) forms with every pension provider — this does not change the IHT position, but it does ensure the pension trustees know who the intended beneficiary is and can pay the residual pension (after IHT) as quickly as possible. Consider whether taking pension benefits before April 2027 is worthwhile — withdrawals from pensions are taxable as income, so the decision depends on your income tax rate versus the IHT rate. For those with very large pension pots in poor health, there may be a case for crystallising some pension funds before the change. For business owners and farmers: review the estate valuation now to understand the impact of the £1 million cap on your specific position. If the estate exceeds the cap significantly, consider whether gifting business or agricultural assets to the next generation now (with appropriate succession planning) makes sense. Any gift of qualifying business or agricultural property is a PET — IHT-free if the donor survives 7 years. For AIM portfolio holders: review whether the portfolio still makes sense at 50% BPR and consider the alternative of systematic lifetime gifting. For everyone: these changes significantly increase the IHT exposure of many estates that were previously well-protected. It may be worth taking specialist estate planning advice and reviewing your will (especially any trusts or specific legacies) in light of the new IHT position.

As of June 2026, the April 2027 IHT changes announced in the Autumn Budget 2024 are not yet fully enacted in statute. Budget announcements are made by the Chancellor as a statement of government policy and intention, but they only become law once the relevant provisions pass through Parliament in a Finance Bill and receive Royal Assent. The provisions for the pension IHT change, AIM BPR reduction, and BPR/APR cap are expected to be included in the Finance Bill 2025/26 or a subsequent Finance Bill. Legislation in this area is technically complex — particularly the pension IHT mechanics — and has been subject to extensive industry and professional consultation during 2025. The government has reaffirmed its intention to implement the changes from 6 April 2027, but the precise mechanics (including how pension providers will pay IHT, how the £1m cap will be applied across multiple assets, and how the AIM BPR change will be calculated) may be modified in the final legislation compared to the consultation documents. Before taking significant planning action, it is advisable to take specialist tax advice and verify the current state of the legislation. Planning based on announced but not yet enacted rules carries the risk that the final law differs in material ways from what was announced. Monitor HMRC's website, HM Treasury consultations, and professional body guidance (CIOT, STEP, ICAEW) for updates as the legislation progresses.

No — the April 2027 IHT changes do not alter the nil-rate band (NRB) or the residence nil-rate band (RNRB). The NRB remains frozen at £325,000 per individual (£650,000 for a married couple/civil partners if the first spouse's NRB is fully unused). The RNRB remains at £175,000 per individual (£350,000 for a couple), tapered by £1 for every £2 the net estate exceeds £2 million. Both bands remain frozen at their current levels until at least 2030 under the current government's plans — a freeze that, combined with house price inflation, effectively constitutes a real-terms tax rise as more estates are dragged above the threshold. The interaction of the April 2027 changes with the NRB and RNRB means estates need to be modelled carefully: the pension value added to the estate may push the total above the RNRB taper threshold (£2 million), reducing or eliminating the RNRB that would otherwise have been available. For example: a widow with a £1.8 million estate and a £400,000 pension would have a total estate of £2.2 million under the new rules — £200,000 above the taper threshold — losing £100,000 of RNRB (£2 per £1 over threshold). This interaction multiplies the impact of the pension change for those with mid-sized estates where the RNRB taper is relevant. See also: `residence-nil-rate-band-uk`, `nil-rate-band-transfer-claim-uk`, `pension-inheritance-tax-2027-uk`.