IHT Reform 2026 UK: BPR and APR £1m Cap Live from April 2026, Pension IHT from April 2027, NRB Frozen to 2030 — Planning Implications Explained
The Finance Act 2025/26 — implementing Autumn Budget 2024 — made the biggest IHT changes in decades. BPR and APR now capped at £1m (100% relief) from April 2026. Pension funds enter the IHT net from April 2027. NRB and RNRB frozen until 2030. All existing estate plans with business assets, farms, or large pensions must be reviewed.
Finance Act 2025/26: Three Major IHT Changes — BPR/APR Cap (April 2026), Pension IHT (April 2027), NRB Freeze (to 2030)
BPR + APR CAP: from 6 April 2026 — combined qualifying business/agricultural assets: first £1m at 100% relief (no IHT); above £1m at 50% relief (20% IHT). Unlimited 100% BPR/APR abolished above £1m. PENSION IHT: from 6 April 2027 — unused DC pension funds (SIPPs, drawdown pots) included in estate for IHT. Currently exempt. Planning window: 10 months to April 2027. NRB FREEZE: NRB £325k; RNRB £175k — both frozen until at least April 2030. RNRB TAPER: £2m threshold also frozen. Combined NRB + RNRB per couple: £1m (unchanged). All estate plans involving businesses, farms, AIM shares, or large pensions should be reviewed immediately.
| Change | Detail / Rules | Worked Example | Planning Response |
|---|---|---|---|
| BPR and APR £1m combined cap (from 6 April 2026) | BEFORE 6 APRIL 2026: Business Property Relief (BPR) under ss103-114 IHTA 1984 provided 100% relief on qualifying business assets (unquoted shares, AIM-listed shares, interests in trading partnerships, sole trader businesses) with NO cap. Agricultural Property Relief (APR) under ss115-124C IHTA 1984 provided 100% relief on qualifying agricultural property with NO cap. Both reliefs were unlimited in value. FROM 6 APRIL 2026 (FINANCE ACT 2025/26): a combined BPR + APR cap of £1 million per person (or per trust per 10-year period) applies. First £1m of combined qualifying assets: 100% relief (IHT = 0%). Assets above £1m: 50% relief only — 50% of value is chargeable at 40% IHT = effective IHT rate of 20% on the excess. THE CAP IS PER PERSON PER DEATH (not per asset type): BPR and APR are combined in one £1m pool. A farmer with £800k farmland (APR) and £400k AIM shares (BPR) has £1.2m qualifying assets — £200k above the cap is subject to 50% relief and then 40% IHT (£40k IHT). A farmer with £3m farmland — £1m exempt; £2m at 50% relief: IHT on £1m at 40% = £400k. PRE-CAP POSITION: same farm would have had 100% APR — IHT = £0. IMPACT: the biggest change is for large farm and business estates. AIM investors also affected: portfolios above £1m can no longer be 100% BPR-exempt. TRUSTS: the £1m cap applies per trust per 10-year period — trusts holding qualifying assets above £1m now face higher periodic charges. | EXAMPLE — FAMILY FARM: The Blackwood family farm in Devon. Agricultural land value: £2.5m. APR before April 2026: 100% — IHT = £0. APR from April 2026: first £1m: 100% exempt (£1m × 40% = £400k saved). Remaining £1.5m: 50% relief — £750k exempt; £750k chargeable at 40% = IHT: £300k. TOTAL IHT (post-cap): £300k. TAX INCREASE VS PRE-CAP: +£300k in new IHT exposure. THE FARM MUST NOW FIND £300k IN IHT — either from other estate assets (cash, investments), by selling land, or from life insurance. EXAMPLE — AIM SHARE PORTFOLIO: Charlotte holds £2m in AIM shares qualifying for BPR. Pre-April 2026: 100% BPR — IHT = £0. Post-April 2026: £1m: 100% BPR (£0 IHT). £1m above cap: 50% relief = £500k exempt; £500k × 40% = £200k IHT. NOTE: if Charlotte had given the AIM shares as a PET in her lifetime BEFORE April 2026: BPR would apply to the gift (no IHT at the time of the gift, provided Charlotte survived 7yr AND the donee retained BPR-qualifying assets at Charlotte's death). Consider lifetime gifting. | PLANNING RESPONSES TO THE £1M CAP: (1) LIFETIME GIFTS OF BPR/APR ASSETS: gifts of BPR/APR qualifying assets are potentially exempt transfers (PETs) — if the donor survives 7yr, the full value (including any growth) leaves the estate. BPR/APR on the gift itself means no IHT EVEN IF the donor dies within 7yr (provided the donee retains qualifying assets). Lifetime gifts before death use the 7yr rule — the cap applies on death, but gifted assets do not count toward the death-estate cap if given away. (2) REVIEW ESTATE COMPOSITION: order BPR and APR assets within the £1m cap to maximise relief (e.g., include lower-value but qualifying business assets, leave less qualifying assets outright). (3) LIFE INSURANCE: take out whole-of-life insurance written in trust to cover the new IHT exposure above the cap. For a farm family facing £300k IHT: a joint-life second-death policy (pays on the second spouse's death) of £300k written in trust provides the cash to pay HMRC without selling land. (4) EMPLOYEE OWNERSHIP TRUSTS (EOTs): trading businesses can be sold to an EOT (s28A IHTA — 100% IHT exempt; s169I TCGA — 100% CGT exempt on the sale). EOTs are not subject to the £1m cap (the EOT exemption is a specific per-se exemption). (5) ENTERPRISE INVESTMENT SCHEMES (EIS): EIS shares qualify for 100% BPR after 2 years — subject to the £1m cap from April 2026. Still valuable within the cap. Above the cap: 50% relief. (6) REVIEW TRUST STRUCTURES: trusts holding qualifying BPR/APR assets above £1m will have higher 10-year periodic charges. Consider whether trust structures should be unwound (s144 appointments within 2yr of the settlor's death may help). |
| Pension funds brought within IHT from April 2027 | CURRENT POSITION (TO 5 APRIL 2027): defined contribution pension funds (SIPPs, personal pensions, self-invested personal pensions) are OUTSIDE the estate for IHT purposes. Pension death nominations: the pension fund passes to nominated beneficiaries FREE OF IHT (as the pension trustees have discretion — the fund is not part of the deceased's estate). This makes pensions one of the most IHT-efficient ways to pass wealth — a £500k SIPP passes completely free of IHT to children. FROM 6 APRIL 2027 (FINANCE ACT 2025/26): unused defined contribution pension funds (uncrystallised funds and unused drawdown pots) will form part of the estate for IHT. The pension administrator will be responsible for reporting and paying IHT on the pension fund before it is paid to the nominated beneficiaries. DEFINED BENEFIT PENSIONS: the proposed changes primarily target defined contribution funds. Lump-sum death benefits under defined benefit schemes may also be affected — the detail of the regulations is still being consulted on (as of June 2026). ANNUITIES: purchased annuities that cease on death are not affected (no residual value). EXCEPTIONS AND PLANNING WINDOW: (a) pensions accessed before April 2027 (drawdown, annuity purchase) remove the fund from pension wrapper — no IHT. (b) tax-free cash (PCLS) taken before April 2027 exits the pension wrapper; the cash then forms part of the estate but may be gifted (PET) or used. (c) gifts from pension income are potential s21 normal expenditure exemptions. (d) spouse exemption: pension funds passing to a UK-domiciled surviving spouse under the pension trust nomination remain IHT-exempt (spouse exemption — s18 IHTA — applies even after the pension is brought within IHT). | EXAMPLE — PENSION IHT IMPACT FROM APRIL 2027: James (age 62, estate: £1.2m; SIPP value: £800k). POSITION TO APRIL 2027: SIPP = outside estate. Estate (ex-pension): £1.2m. IHT: 40% × (£1.2m − £325k − £175k RNRB) = 40% × £700k = £280k. SIPP passes IHT-free to James's son: £800k to son. Net received by beneficiaries: son gets £800k (pension); estate beneficiaries get £1.2m − £280k = £920k. Total: £1.72m. POSITION FROM APRIL 2027: SIPP = within estate. Estate (including pension): £1.2m + £800k = £2m. IHT: 40% × (£2m − £325k) = 40% × £1.675m = £670k. RNRB: £175k — taper applies (estate above £2m: RNRB reduces by £1 per £2 above £2m; estate IS £2m: no taper yet). NRB + RNRB = £500k. IHT: 40% × £1.5m = £600k. Net to beneficiaries: £2m − £600k = £1.4m — vs £1.72m under old rules. The pension change costs this family £320k in additional IHT. PLANNING RESPONSE: James should review his pension nominations, consider whether to draw down and gift (s21 or PET), and take specialist advice before April 2027. | PENSION IHT PLANNING BEFORE APRIL 2027: (1) REVIEW PENSION NOMINATIONS NOW: ensure pension death nominations are up to date. Post-April 2027, the pension fund will be included in the estate for IHT — but the SPOUSE EXEMPTION still applies if the whole pension is nominated to a surviving UK-domiciled spouse. Nominating the pension to a spouse: no IHT on first death (spouse exemption); the surviving spouse inherits the pension fund. On the second death: the pension is in the surviving spouse's estate (along with their own estate) — total IHT depends on the combined estate. (2) DRAW DOWN PENSION BEFORE APRIL 2027: for those who no longer need the pension for income — draw down the pension fund (subject to income tax) and: (a) reinvest in IHT-efficient assets (AIM shares via BPR; EIS); (b) make PETs — gift the after-tax amount to children (7yr clock starts); (c) make s21 normal expenditure gifts from pension income (no cap; no 7yr wait). (3) PENSION CONTRIBUTIONS: for those not yet at retirement: pension contributions remain tax-efficient (income tax relief on contributions; tax-free growth; tax-free lump sum at retirement). Post-April 2027: the pension is in the estate — but pension contributions are still the most tax-efficient investment vehicle for personal saving. (4) CHARITABLE NOMINATION: nominating some or all of the pension to charity from April 2027 will be IHT-exempt (s23 IHTA). A charitable pension nomination combined with a 10% charitable legacy in the will could reduce the IHT rate to 36% on the residual estate. (5) SPECIALIST PENSIONS AND INHERITANCE TAX ADVICE: the interaction of income tax on pension drawdown, IHT on the estate, and the timing of pension access is highly individual. Specialist advice is essential before making irreversible pension decisions. |
| NRB and RNRB frozen to April 2030 — the stealth IHT rise | NIL-RATE BAND (NRB — s7 and s8 IHTA 1984): the NRB is the threshold below which no IHT is charged on death. The current NRB is £325,000 per person — unchanged since April 2009. It was due to rise with inflation but has been frozen repeatedly. Under the Autumn Budget 2024 policy, the NRB is frozen at £325,000 until at least April 2030. RESIDENCE NIL-RATE BAND (RNRB — s8D IHTA 1984): the RNRB is an additional relief of up to £175,000 per person where the deceased's qualifying residence passes to direct descendants. The RNRB is also frozen at £175,000 until April 2030. COMBINED NRB + RNRB PER COUPLE: £325k + £175k = £500k per person = £1 million per couple (where the home passes to descendants and TNRB applies). THE STEALTH IHT RISE: with house prices and inflation rising, the NRB freeze means a growing proportion of estates cross the IHT threshold. An estate at £350k in 2009 (just above the NRB) might be worth £600k+ today — now deeply into IHT territory. The freeze effectively raises IHT by stealth: the tax rate stays at 40% but more assets become chargeable as nominal values rise. RNRB TAPER: the RNRB is tapered by £1 for every £2 of estate above £2m. An estate of £2.5m loses the full RNRB (£175k tapered away). The £2m taper threshold is ALSO FROZEN until 2030 — this is another stealth rise as estates grow above £2m. | EXAMPLE — NRB FREEZE IMPACT: the Thornton family. In 2009: estate = £400k. IHT: 40% × (£400k − £325k) = 40% × £75k = £30k. In 2026 (estate grown to £800k due to house price inflation): IHT: 40% × (£800k − £325k − £175k RNRB) = 40% × £300k = £120k. Increase in IHT bill: £90k — entirely due to asset price inflation, not new wealth. NRB in real terms (CPI-adjusted from 2009): £325k in 2009 prices ≈ £500k+ in 2026 terms. The frozen NRB has not kept pace with inflation — families are paying real IHT increases on the same proportional share of wealth. RNRB TAPER EXAMPLE: George (estate: £2.3m). RNRB available: £175k. Taper: £1 per £2 above £2m. Excess above £2m: £300k. Taper reduction: £300k / 2 = £150k. RNRB available: £175k − £150k = £25k. George's estate loses most of the RNRB due to the taper. NRB + adjusted RNRB = £325k + £25k = £350k. IHT: 40% × (£2.3m − £350k) = 40% × £1.95m = £780k. | PLANNING IN THE CONTEXT OF FROZEN THRESHOLDS: (1) MAXIMISE THE RNRB: ensure the qualifying residential interest (QRI — the main home) passes to direct descendants (children or grandchildren — including adopted, step-, or foster children). Leave the home DIRECTLY to descendants (or via a bare trust or IPDI for the surviving spouse). Avoid placing the family home in a general discretionary trust (RNRB lost unless trustees appoint the home to descendants within 2yr under s144 IHTA). (2) USE THE TRANSFERABLE NRB (TNRB — s8A IHTA): the surviving spouse's estate can claim the unused NRB percentage from the first death. On the second death, the surviving spouse has up to 200% of the NRB (if the first spouse's NRB was unused) = £650k combined NRB. The TNRB must be claimed within 2yr of the surviving spouse's death (IHT402). Claim both NRBs and both RNRBs: total IHT-free per couple = £1m (£650k NRB + £350k RNRB — where both RNRBs claimed). (3) ANNUAL GIFTS — especially important given the freeze: systematic annual gifting (s19 annual exemption; s21 normal expenditure from income) reduces the estate year by year. With the NRB frozen, even modest gifting (£3k-£6k/yr) compounds to significant IHT savings over a decade. (4) REVIEW WILLS — REGULARLY: wills written before the RNRB (introduced 2017) or before the pension changes (April 2027) may need updating. Ensure the will correctly passes the home to descendants (RNRB) and interacts with pension nominations correctly post-April 2027. (5) LIFETIME DOWNSIZING: moving to a smaller home reduces the estate directly. The RNRB downsizing addition (s8FA IHTA) preserves some RNRB where the home was sold and not replaced. (6) CONSIDER PROFESSIONAL ESTATE PLANNING REVIEW: with the NRB frozen until 2030 and the new pension/BPR/APR changes, all estates above £500k should review their estate plan. A specialist solicitor or chartered accountant with IHT expertise can model the IHT impact and recommend specific strategies. |
IHT reform 2026 UK — Finance Act 2025/26 and Autumn Budget 2024 changes. BPR/APR CAP: the £1m combined cap on 100% BPR (ss103-114 IHTA 1984) and APR (ss115-124C IHTA 1984) was announced in the Autumn Budget 2024 (29 October 2024) and took effect from 6 April 2026. Prior to the cap: qualifying business and agricultural assets attracted 100% IHT relief with no upper limit. The cap applies per person (or per trust per 10-year periodic charge date). How the cap operates in an estate: (a) identify all BPR and APR qualifying assets in the estate; (b) value them at death; (c) apply 100% relief to the first £1m (BPR and APR combined, in the most beneficial order — typically BPR first); (d) apply 50% relief to the remainder above £1m; (e) charge IHT at 40% on the 50% chargeable value above the cap (i.e., effective rate 20% on the excess above £1m). TRUSTS: the cap is applied per relevant property trust per 10-year periodic charge date (not per beneficiary). Where a trust holds BPR/APR assets worth more than £1m: periodic charges apply to the excess above the cap (at 50% relief = 3% max 10-year rate on the excess instead of 6% on a fully chargeable trust or 0% on a fully BPR-qualifying trust as before). INTERACTION WITH NRB: the NRB (£325k) and RNRB (£175k) are applied after BPR/APR relief — against the chargeable portion of the estate. PENSION IHT (APRIL 2027): the Finance Act 2025/26 brings defined contribution pension funds within the scope of IHT from 6 April 2027. Under the new regime: (a) the pension administrator is responsible for calculating and paying the IHT on the pension pot; (b) IHT is paid before the residual pension value is passed to nominated beneficiaries; (c) the pension value is added to the deceased's estate (for rate purposes) — the NRB and RNRB apply to the combined estate including pension; (d) spousal exemption (s18 IHTA) applies where the pension is nominated to the surviving UK-domiciled spouse. The regulations (statutory instruments) implementing the pension IHT regime were in final consultation as of Q1 2026; full detail expected by Q3 2026. EIS/SEIS: Enterprise Investment Scheme (EIS) shares qualifying for BPR retain 100% relief after 2 years — subject to the £1m combined cap. EIS shares above the cap: 50% relief. Seed Enterprise Investment Scheme (SEIS) shares also qualify for BPR (2-year holding period). AIM shares: quoted shares on the Alternative Investment Market that carry on a qualifying trading activity continue to qualify for BPR — but subject to the £1m cap from April 2026. The AIM IHT-ISA (ISAs investing in BPR-qualifying AIM shares) loses some of its IHT efficiency above the £1m cap. NRB AND RNRB FREEZE: first announced in Spring Budget 2021; extended to April 2030 by the Autumn Budget 2024. The NRB (£325k) has been frozen since 2009. In real terms (CPI-adjusted), £325k in 2009 equates to approximately £520k in 2026 — meaning the real NRB threshold has fallen by about 37% in real terms since the freeze began. RNRB TAPER: the RNRB begins to taper at £2m and is fully tapered away at £2.35m (£2m + £175k × 2). Both thresholds frozen to 2030. AUTUMN BUDGET 2024 IHT MEASURES NOT IN THIS ARTICLE: see also changes to non-domicile/UK long-term resident rules (separately affected excluded property trusts and the deemed domicile regime from April 2025), and the Offshore Anti-Avoidance rules. SOURCES: Finance Act 2025/26; HMRC Autumn Budget 2024 Tax Information and Impact Notes (TIINs); HMRC Inheritance Tax Manual (IHTM). PROFESSIONAL ADVICE: all figures are illustrative. The interaction of BPR/APR cap, pension IHT (from April 2027), NRB freeze, RNRB taper, and lifetime gifts is complex. Take advice from a specialist solicitor or chartered accountant with IHT experience before making estate planning decisions based on the 2026 reforms.
Frequently Asked Questions
What changed with inheritance tax in April 2026?
The Finance Act 2025/26 (implementing Autumn Budget 2024 announcements) introduced two major changes from 6 April 2026: (1) Business Property Relief (BPR) and Agricultural Property Relief (APR) are now capped at a combined £1 million per person at 100% relief. Assets above £1m receive 50% relief only — previously both reliefs were unlimited at 100%. This significantly affects large business owners, farmers, and AIM share investors. (2) The nil-rate band (NRB, £325k) and residence nil-rate band (RNRB, £175k) remain frozen until at least April 2030 — continuing the stealth IHT rise as asset values increase. A further change — bringing pension funds within IHT — takes effect from 6 April 2027 (not April 2026).
Will pensions be subject to inheritance tax from April 2027?
Yes — from 6 April 2027, unused defined contribution pension funds (SIPPs, personal pensions, uncrystallised funds, drawdown pots) will form part of the deceased's estate for IHT. Under the current rules (to 5 April 2027), pension funds nominated to beneficiaries fall outside the estate — a major IHT advantage. From April 2027, the pension value is added to the estate and taxed at 40% above the NRB (subject to exemptions — e.g., funds nominated to a UK-domiciled surviving spouse remain spouse-exempt). This change most affects people who have used SIPPs and DC pensions as an IHT-efficient inheritance vehicle. Planning options: draw down pension funds before April 2027 and gift the after-tax proceeds; review pension nominations; consider charitable nomination; seek specialist advice.
How does the £1m BPR/APR cap affect farmers and business owners?
Before April 2026, a farmer or business owner with qualifying assets worth £5m could pass the entire business or farm IHT-free (100% BPR or APR, no cap). From April 2026, the first £1m of combined BPR/APR qualifying assets remains 100% exempt, but assets above £1m receive only 50% relief — meaning 20% IHT on the excess (50% of 40%). A farm worth £3m now faces IHT of £800k on the portion above £1m (£2m × 50% × 40% = £400k — adjusted for NRB). Large farming families must now plan for this new IHT liability: life insurance to cover the tax bill, lifetime gifting of business assets (PETs + BPR on the gift), Employee Ownership Trust structures, or restructuring. Estates already planned around 100% unlimited BPR/APR should be reviewed urgently.
Is the nil-rate band going up in 2026 or 2027?
No — the nil-rate band (NRB) remains frozen at £325,000 until at least April 2030 under the Autumn Budget 2024 policy. The residence nil-rate band (RNRB) is also frozen at £175,000 per person until 2030. There is no increase planned before 2030. The NRB has been frozen at £325k since April 2009 — in real (inflation-adjusted) terms, it is worth significantly less than in 2009. As house prices and estates grow, more families cross the IHT threshold each year due to this freeze. For a couple using both NRBs, RNRBs, and the transferable NRB: the combined effective IHT-free amount is £1m per couple — but only where the qualifying home passes to direct descendants.
Do the April 2026 IHT changes affect AIM shares?
Yes — AIM shares that qualify for 100% BPR (business property relief) are now subject to the £1m combined BPR/APR cap from April 2026. Before the cap, an investor with £2m in qualifying AIM shares could pass the entire portfolio IHT-free. From April 2026: £1m of AIM shares qualifies at 100% BPR (no IHT); £1m above the cap qualifies at 50% BPR (effectively 20% IHT on that portion). An AIM portfolio of £2m now incurs IHT of £200k on the portion above the cap (compared to £0 before). Planning: AIM ISAs lose some IHT efficiency above £1m. Consider whether holding BPR-qualifying AIM shares is still optimal for the portion above £1m, or whether lifetime gifting (PETs with BPR on the gift) is more efficient for large portfolios.
Update Your Estate Plan for the 2026 IHT Reforms — Start With Your Will
The BPR/APR cap and pension changes mean every estate plan involving business assets, farms, or large pensions needs reviewing. Start with a correctly drafted will — then take specialist advice on business and pension structuring.
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