Key Changes Effective 6 April 2026 and Planning Actions.
1. Overview of the Reforms
The Government’s draft legislation, published 21 July 2025, confirms the most sweeping overhaul of Business Relief (BR) and Agricultural Relief (AR) for a generation, with implementation set for 6 April 2026. These reforms materially alter how business assets, agricultural property, and trust structures are treated for inheritance tax (IHT) purposes. For many family business owners, the interaction of these rules with succession plans will require substantial re‑planning.
While qualification criteria for BR/AR remain broadly unchanged, the rates of relief and structure of allowances will change significantly. The rules also impose entirely new constraints on trusts—both existing trusts and those created after 30 October 2024.
2. Qualification Review for BR/AR
Although the core qualifying tests remain, businesses must ensure that they still meet the existing criteria. Any changes in business structure, trading status, asset composition, or financing arrangements may jeopardise the availability of relief.
Key risks include:
- increased non‑qualifying investments,
- excessive cash holdings,
- reorganisations affecting trading vs. investment ratios,
- significant changes in ownership or group structure.
Action: A full review of qualifying conditions should be undertaken as soon as possible to identify any remedial steps.
3. New Structure of Relief From 6 April 2026
3.1 Availability of Relief
From 6 April 2026:
- The first £2.5 million of combined BR/AR‑qualifying assets per individual receives 100% relief.
- Amounts above £2.5 million receive 50% relief.
- AIM‑quoted shares and similar traded-but-unlisted assets qualify only for 50% relief, with no access to the £2.5m 100% band.
3.2 Lifetime Allowance Mechanics
The £2.5m is effectively a lifetime allowance, applied across:
- death estate,
- failed potential exempt transfers (PETs),
- lifetime transfers into trust within seven years of death.
The allowance refreshes on a rolling seven‑year basis, consistent with the nil rate band (NRB) framework. Transfers made more than seven years before death remain outside the chargeable estate, with taper relief applying to those made three to seven years before death.
3.3 Gifting Opportunities
Every seven years, business owners can transfer up to £2.5m of unquoted BR‑qualifying shares to a trust or directly to family without lifetime IHT, provided the value does not exceed the allowance. Transfers above this may trigger lifetime IHT but can qualify for instalment payment over ten years.
4. Succession Planning and Wills
The new structure of the BR/AR allowance can materially affect the optimal structure of a will.
Key considerations:
- In some cases, leaving the business via a specific legacy (not residue) may ensure the full £2.5m allowance is used.
- Married couples: each spouse has an individual £2.5m allowance, but these allowances are now transferable (as confirmed on 23 December 2025).
- Spousal exemption remains unchanged—assets can pass tax‑free to a UK long‑term resident spouse.
5. Transitional Rules: October 2024 to April 2026
A particularly complex area of the reforms is the transition period:
5.1 Gifts Made Between 30 October 2024 and 5 April 2026
- These transfers fall under the current rules when made (i.e., typically no lifetime IHT).
- However, if the donor dies after 5 April 2026 and within seven years of the gift, the IHT calculation on the failed PET or chargeable lifetime transfer follows the new rules.
This can create situations where the donor expected no tax but the new regime leads to increased exposure on death.
5.2 Transfers Made After 6 April 2026
- Fully within the new regime.
- Gifts into trust above the £2.5m lifetime allowance will trigger lifetime IHT.
- PETs above £2.5m will remain PETs but will have reduced or no relief at death.
Planning point: There is a strong incentive to complete business asset gifting before April 2026.
6. Trusts: Pre‑ and Post‑30 October 2024 Rules
The reforms treat trusts differently depending on when they were established.
6.1 Trusts Created Before 30 October 2024
These trusts benefit from:
- Their own £2.5m BR/AR allowance, in addition to the settlor’s personal allowance.
- 100% BR/AR under the current rules until the next 10‑year anniversary.
A trust may therefore dispose of qualifying assets before this anniversary and still receive unlimited 100% relief.
However, exit charges following a 10‑year anniversary occurring on or after 6 April 2026 may require calculation under two different methods due to transitional provisions.
6.2 Trusts Created After 29 October 2024
Transfers of BR/AR assets into trust before 6 April 2026:
- No immediate lifetime IHT charge, even if the value exceeds £2.5m.
Transfers on or after 6 April 2026:
- Lifetime IHT applies immediately where transfers exceed £2.5m plus NRB.
- Trusts will face 10‑year anniversary charges up to 3% on value above the trust’s £2.5m allowance and NRB.
Multiple settlors can each contribute £2,5m of allowance into a joint trust, but once a portion is allocated it is permanently used for that settlor, even if the trust is later wound up.
7. Instalment Options and Funding IHT
The ability to pay IHT attributable to BR/AR assets in 10 annual interest‑free instalments remains available under the new regime. This applies to:
- lifetime charges,
- death duties,
- 10‑year charges,
- exit charges.
However, liquidity constraints may still force sales of business assets. No updated guidance has been provided regarding share buybacks for IHT funding.
8. Interaction With Other Upcoming Reforms
Two further changes interact with planning under the BR reforms:
- Domicile reforms—effective April 2025
Non‑dom business owners must consider domicile position and exposure to worldwide estate charges. - IHT on pensions—changes effective from April 2027
Pension death‑benefit tax treatment will evolve and should be considered alongside BR/AR restructuring.
9. Planning Priorities Before 6 April 2026
A coordinated review should assess:
-
BR/AR Qualification Review
Identify any threats to relief and implement corrective steps.
-
Gifting Strategy
Maximise use of pre‑April‑2026 rules for business asset gifts.
-
Trust Strategy
Determine whether to:
– extract assets from older trusts while 100% relief remains,
– establish new family trusts before the April deadline.
-
Will and Succession Restructuring
Ensure the £2.5m allowances are optimally used.
-
Cashflow & Insurance Planning
Review liquidity and consider insurance to meet potential IHT exposures.
-
Timing Analysis
Align transfers, trust anniversaries, and disposals with favourable transitional rules.
10. Conclusion
The 6 April 2026 reforms represent a structural shift in how business and agricultural assets are taxed for inheritance tax purposes. The new £2.5m lifetime allowances, reduced relief rates, trust restrictions, and transitional complexity make early action not only beneficial but essential.