Inheritance Tax Reform: Key Changes for Family Businesses and Farms from April 2026

The Government’s Autumn 2024 Budget announced one of the most significant reforms of Inheritance Tax (IHT) reliefs in decades, specifically affecting business and agricultural property. Draft legislation, published on 21 July 2025, confirms that these changes will take effect from 6 April 2026, with further pension-related reforms to follow from 6 April 2027.

The implications for farmers, landowners, trustees, family business owners and also executors, are substantial. The reforms reduce long-standing reliefs, allowances, and increase compliance obligations.

Key Legislative Updates

The draft legislation confirms the key features of the proposed reforms:

A cap of £1 million per individual (or qualifying trust) for full 100% Business Property Relief and Agricultural Property Relief.
Relief above this cap is limited to 50%, introducing an effective 20% IHT charge on the excess.
The £1 million cap is fixed until April 2030, after which it will be indexed in line with the Consumer Price Index.
There will be no spousal or civil partner transferability of the £1 million allowance.
Unquoted shares and Alternative Investment Market listed shares, previously fully exempt, will now only qualify for 50% relief.
Transitional rules apply to lifetime gifts made between 30 October 2024 and 5 April 2026.
From 6 April 2027, most unused pension funds and death benefits may become fully taxable on death.

Trusts: Pre and Post October 2024 Rules

Under the new legislation, the treatment of trusts which are subject to 10 year IHT charges and IHT charges on trust capital distributions, depends on when they were created:

Trusts established before 30 October 2024 retain a separate £1 million relief cap per trust. These pre-existing trusts remain a useful tool and should be reviewed to ensure the relief is properly used.
Trusts created on or after 30 October 2024 will share a single £1 million cap per settlor, regardless of the number of trusts established.

In addition, the rules for age-18–25 trusts and first 10-year anniversary charges have been updated, with new valuation and compliance requirements.

While the opportunity to create new trusts under the old rules has now passed, many clients will benefit from a review of their existing trust arrangements to ensure that they align with the coming reforms.

Lifetime Gifting and Protection Measures

Strategic gifting before April 2026 can help make use of the current 100% relief rates. However, even where gifts are made, the seven-year survival rule still applies, and gifts must be properly valued and recorded to support any claim for relief.

When transferring valuable assets, particularly farmland or business shares, it is essential to put protective structures in place. These include:

Shareholders’ Agreements

A shareholders’ agreement is a private legal contract between the shareholders of a company. When gifting shares in a family business, such agreements can:

Prevent shares from being sold outside the family or to third parties.
Require shares to be offered back to other shareholders before disposal.
Protect control of the business by specifying how decisions are made.
Clarify dividend rights, voting powers, and exit terms.

Pre-Nuptial and Post-Nuptial Agreements

When gifting assets to children or beneficiaries who are married, or may marry in the future, it is advisable to put in place a pre-nuptial agreement (before marriage) or post-nuptial agreement (after marriage). These documents:

Set out how family gifts or inherited assets should be treated if the marriage ends.
Reduce the risk of those assets forming part of a divorce settlement.

While not automatically binding in the UK, courts increasingly uphold such agreements where both parties have received independent legal advice, and the terms are fair.

Declarations of Trust

A declaration of trust is a legal document that sets the terms on which an asset is held on trust. It can:

Set who is beneficially entitled to the assets.
Set conditions on how the asset is used or sold.
Set out powers for the Trustees.

Pension Planning: New IHT Risks from April 2027

From 6 April 2027, unused pension savings can become part of the value of a deceased’s taxable estate.

These pensions will not qualify for Business Property Relief or Agricultural Property Relief, creating unexpected IHT exposure for families who previously assumed pensions were outside the estate. This change removes the long-standing exemption, meaning pensions and death benefits may now significantly increase the value, and thus the IHT liability of an estate.

Executors, Trustees, and Fiduciary Responsibilities

The new rules place additional duties and liabilities on executors and trustees, particularly from April 2027:

Valuing all relevant assets accurately, including businesses, land, and pensions.
Determining whether assets qualify for Business Property Relief or Agricultural Property Relief, and at what rate.
Calculating and paying IHT within required timeframes.
Keeping appropriate records and ensuring HMRC reporting obligations are met.

Choosing the right executors and trustees is now more critical than ever. They must be capable of navigating complex valuation, tax, and compliance processes.

How We Can Help

Our professional and experienced Private Client team is experienced in helping families, landowners, and business owners adapt to complex changes in tax and estate legislation. We can:

Assess how the relief cap will affect your estate and where planning is needed.
Review and update trusts and wills to ensure full use of available allowances.
Advise on tax-efficient and protected ways to pass on assets using trusts. Our dedicated Corporate and Family teams can put in place Shareholder Agreements and advise on family protections.
Work with your financial advisers to align your pension and estate plans under the new rules.
Help you select the right executors, advise you of their responsibilities in light of the changes, and provide support to ensure they can meet their obligations.

If you would like to understand how these changes affect your Wills, Estate, Trust arrangements, or lifetime gifting strategy, please contact our Private Client team on 01384 410410 or use our online enquiry form.

You can also contact our Corporate team on 01384 340 596 and our Family team on 01902 328 365.