Businesses and Farms
From 6th April 2026, Business Property Relief (BPR) and Agricultural Property Relief (APR) at 100% will be capped at £1 million and anything more than that will be taxed at 50% of the IHT rate, giving an effective IHT rate of 20% whereas previously, the exemptions were potentially unlimited depending on the circumstances.
Case study
Mr and Mrs Smith own a dairy farm (to include the house) worth £4 million. They have two children together, Jack and Jill. In their Wills, they leave everything to each other on first death and then equally between the children on second death.
Under the current rules, there would be no IHT on first because of spouse exemption and potentially no IHT on second death if they die before 6th April 2026 (assuming the relevant criteria has been met).
After 6th April 2026, there would be no IHT on first death, but on second death, the usual NRBs would be available; the RNRBs would be tapered away, APR is available for the first £1 million but the balance would be taxed, creating an IHT liability of £470,000.
AIM Investments
Will no longer be 100% exempt after the requisite two-year ownership period, but instead will be reduced to 50% relief.
Pensions
Previously not forming part of the estate for IHT purposes, they will be considered from 6th April 2027, which will add to the value of the estate for the purpose of qualifying for the RNRB.
Case Study
Mr and Mrs Jones have a house, savings and investments totalling £1.5 million and a pension of £1.3 million.
In their Wills, they leave everything to each other on first death and then equally between the children on second death.
Under the current rules, there would be no IHT on the first death because of spouse exemption, and on the second death, an IHT liability of £200,000 if they die before 6th April 2027.
After 6th April 2027, the value of their estate would be considered as £2.8 million, which means they would lose the RNRBs, leaving them with a taxable estate of £2,150,000 and an IHT liability of £860,000.