Proposed reforms to Agricultural Property Relief, Business Property Relief, and Inheritance Tax changes to pensions

The government has announced significant reforms to Agricultural Property Relief (APR) and Business Property Relief (BPR) from April 2026. It is expected that around 2,000 estates each year will be affected by these proposed changes.

Agricultural Property Relief

APR is available on the transfer of agricultural property situated in the UK provided various conditions are met.

Agricultural property is agricultural land or pasture and can also include woodland and buildings used for rearing livestock or fish and cottages, farm buildings and farmhouses.

Where assets qualify for APR, relief will be at either 100% or 50%.

Business Property Relief

BPR is available on the value of transfers of business property, providing certain conditions are met, with regard to the length of ownership and type of business.

BPR of 100% is available on:

• A business or interest in a business (including a partnership share)
• Unquoted shares

BPR of 50% is available on:

• Controlling shareholding in a listed company
• Land/buildings/plant/machinery used for a business carried on by a company of which the donor had control/partnership where the donor was a partner/property was settled property in which the donor had an interest in possession

Current rules

Under the current rules, relief for APR or BPR is at either 100% or 50%, depending on the type and use of asset. There is currently no limit on the amount of relief that can be claimed, subject to the conditions for relief being met, including the minimum ownership period.

Proposed rules from April 2026

From April 2026, 100% relief for APR and BPR will be capped to the first £1 million of qualifying assets. Relief will apply at 50% thereafter.

The government has also announced that the rate of BPR for all shares not listed on the markets of recognised stock exchanges, such as AIM shares, will reduce from 100% to 50%.

When do APR and BPR apply?

APR and BPR apply to:

• Property in an individual’s estate on their death
• A lifetime gift made by an individual to another individual where the donor does not survive seven years from the date of gift
• A lifetime gift into a trust where there is an immediate lifetime charge
• Trusts which are subject to 10-year anniversary charges and charges on capital distributions

APR and BPR can significantly reduce, and in some cases, eliminate IHT liabilities completely.

How will the changes affect my IHT liability?

From 6 April 2026, if the total value of assets qualifying for either APR or BPR does not exceed £1 million then APR and BPR can still apply in full, potentially exempting the assets from IHT. Where the total value of assets exceeds £1 million, 100% relief can apply to the value of assets up to £1 million, and 50% relief will apply to the value of assets over £1 million.

For example, if you own assets of £5 million which qualify for 100% BPR, under the current rules no tax will be due on these assets on death as BPR will apply without restriction.

From 6 April 2026, the first £1 million will qualify for relief at 100%. Relief for the remaining £4 million will apply at a reduced rate of 50%, and £2 million will be subject to IHT at 40%, leaving a tax bill of £800,000.

Other IHT reliefs can then be applied as normal, such as the nil-rate band.

Will I be able to transfer any unused allowance to my spouse or civil partner?

Under the current draft legislation and despite much controversy, any unused allowance will not be transferable to spouses and civil partners. This is different to the nil-rate band and residence nil-rate band, where unused allowances may be transferred between spouses and civil partners.

How do the new rules affect trusts?

Existing trusts that held property qualifying for 100% APR or BPR before 30 October 2024 will each have their own £1 million allowance.

For trusts created on or after 30 October 2024 by the same settlor, the £1 million allowance will be split between the trusts based on the value of qualifying property settled.

The tax treatment of capital appointments will depend on when assets were settled into the trust.

For assets settled before 30 October 2024, capital appointments of these assets will be treated under the old rules (unlimited 100% relief) until the next 10-year charge.

For assets settled on or after 30 October 2024, the old rules will apply until 5 April 2026. From 6 April 2026, capital appointments will be subject to the new rules.

When calculating 10-year charges, the period will be split from 6 April 2026. The period before 6 April 2026 will benefit from 100% relief, whereas the period from 6 April 2026 is subject to the £1 million cap.

Can I gift assets now to avoid the new rules?

Transitional rules apply to gifts made on or after 30 October 2024 but before 6 April 2026. Gifts made during this time will initially be assessed under the old rules. However, if the donor dies on or after 6 April 2026 and within seven years of making the gift, then the gift will be assessed under the new rules.

For example, if an individual gifts unquoted shares valued at £5 million on or after 30 October 2024, but subsequently dies on 1 May 2026, the gift will be a failed potentially exempt transfer (PET) as the donor did not survive seven years from the date of gift. When calculating the IHT liability on the failed PET, the first £1 million will qualify for relief at 100%. The remaining £4 million will qualify for relief at 50% leaving a potential IHT liability of £800,000.

If, however, the donor dies on 1 April 2026, then the current rules would apply, and 100% BPR will be available.

Inheritance Tax changes to Pensions

Pensions have historically been exempt from IHT on an individual’s death providing a welcome relief from IHT for many death estates. From 6 April 2027, the government intends to bring unused pension funds and pension death benefits within the value of an individual’s estate for IHT. The government has confirmed that the aim of the change is to prevent pension schemes from being used and marketed as a tax planning vehicle to transfer wealth, rather than funding retirement. This will not include death in service benefits payable from registered pension schemes or defendants’ scheme pensions which will continue to be excluded from the value of an individual’s estate for IHT purposes.

Under the current proposal, the existing exemption for pension death benefits passing to a surviving spouse, civil partner or registered charity will be maintained.

Greater responsibilities will fall on the personal representatives of the estate to ensure any IHT is calculated and paid.  New provisions will be implemented so that IHT liabilities on pensions can be paid directly to HMRC by the pension scheme administrator.

Is there anything else you should consider?

Tax planning is now more important than ever.

You should have a valid Will in place which reflects your current wishes.

The tax reliefs are complex, often with strict conditions to be met before reliefs can apply. Seek advice where required to ensure that you meet the conditions for available reliefs and maximise tax planning opportunities.

If you are thinking of gifting assets which currently qualify for APR and BPR, consider whether you make these gifts now, either directly or into a trust before 6 April 2026.

Trustees should review existing trust structures, and if appropriate, consider restructuring the trust including, in extreme circumstances, winding up the trust.

If you are expecting significant IHT liability, consider funding options such as life insurance.

How Rayner Essex can help

At Rayner Essex we recognise the importance of protecting your wealth and take time to understand each client’s individual needs and goals. Our expert tax advisers can help you review your current tax position, identify opportunities for effective tax planning, and minimise exposure while ensuring full compliance.  

We provide complete peace of mind by ensuring your affairs are structured efficiently, and free from unexpected tax liabilities. Contact us today, to discuss how we can support you.