Understanding Inheritance Tax Changes 2026
The proposed inheritance tax (IHT) changes in 2026 announced by the Labour Government have caused quite a stir. Regardless of where you stand on them, these huge changes are creeping up over the horizon so it is more important than ever to seek professional advice and review your succession planning.
From 6 April 2026, businesses and agricultural assets will qualify for a £1 million allowance of 100% relief from IHT, with the excess relief being restricted to 50% – a significant inheritance tax change from the previously unlimited relief. This will undoubtedly affect many individuals and business owners across the country.
HMRC recently released a consultation running until 23 April 2025, which sets out the proposed new rules. So, what are the key takeaways?
Gifts into trust
Under current rules, an individual can transfer qualifying business and agricultural assets into and out of trusts without incurring IHT. This is set to be one of the many inheritance tax changes in 2026.
The £1m allowance will not apply to transfers into a trust between 30 October 2024 and 5 April 2026 when considering any lifetime IHT due. This could provide a window of opportunity for many individuals.
For new trusts created on or after 30 October 2024, however, the £1million allowance will apply and will be shared between all new trusts created by the same settlor.
The consultation reveals that the £1million allowance will be refreshed every seven years. This means that it could be possible to make a transfer of qualifying business or agricultural property into a trust worth up to £1million without incurring IHT, and this can be repeated seven years later.
Ten year anniversaries and exit charges
The new inheritance tax changes will also affect ten year anniversary events and exit charges for trustees. For trusts created before 30 October 2024 with a ten year anniversary falling after 5 April 2026, the new £1million allowance rules will apply (albeit only to the period after 5 April 2026). Any exit charges that arise after 5 April 2026 and before the next ten year anniversary will not be subject to the new allowance until after the next ten year anniversary has passed.
For trusts created between 30 October 2024 and 5 April 2026, transitional rules apply. On the first ten year anniversary of the trust, the £1 million allowance will only apply to the period after 5 April 2026. Exit charges will only be impacted after 5 April 2026.
Where a trust is created after 5 April 2026, the new rules will apply to both ten year anniversary events and exit charges.
As the above probably demonstrates, the rules around trusts are complex, and trustees should seek professional advice to ensure that they understand their obligations and reporting requirements.
Outright gifts
The £1million allowance will also apply to outright gifts made from 30 October 2024 that have not survived by seven years – otherwise known as failed PETs (Potentially Exempt Transfers). This is unless the individual dies before 6 April 2026, in which case the new rules will not apply.
Non-transferable allowance
The consultation confirms that the £1million allowance is not transferable between spouses. This will mean that it is now crucial for individuals to review their Will to ensure that they are maximising their allowances.
50% relief
Where an individual or trust holds business or agricultural assets worth more than £1million, the rate of relief will be restricted to 50% on the excess value. It should be noted that for shares not listed on stock exchanges (i.e. AIM), the inheritance tax relief will be restricted to 50% regardless of the value.
Inheritance tax payable by instalments
Some positive news in regards to these inheritance tax changes in 2026 is that HMRC has extended its rules around paying IHT in instalments for qualifying business or agricultural property. This will apply to both lifetime transfers as well as on death. IHT can be paid over ten equal instalments without incurring interest if paid on time.
What next?
As well as the proposed inheritance tax changes in 2026, which are detailed above, further significant changes are also due to come into force from April 2027. At this time, pension pots will become part of an individual’s estate, meaning that many more estates will become subject to IHT.
Given the proposed changes, it is important to consider how your executors might fund an unwelcome IHT bill. For business owners, this might mean withdrawing funds in the company, for example.
How can GA Solicitors help?
Whilst the inheritance tax changes in 2026 are not yet set in stone, it is essential to take advice as soon as possible so that planning can be put in place to minimise exposure and ensure that your loved ones will not need to make any difficult financial decisions.
There is rarely a one-size-fits-all solution, so if you would like to discuss how you might be impacted by these changes, please get in touch.
GA Solicitors in Plymouth is ranked in The Legal 500, Chambers High Net Worth and Chambers UK. We are the only Band 1 firm ranked in Chambers High Net Worth in this complex area of law. Our specialist wills, trusts and probate team would be happy to talk you through what options are available and make a plan that is tailored to you.
Call us today on 01725 203500 or email me directly via emily.white@GAsolicitors.com.
You can also read a previous article about inheritance tax changes here.
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