The updated rules allow up to £2.5 million of qualifying agricultural and business assets to receive full IHT relief at 100%. This represents a significant increase from the previously proposed £1 million cap and reflects concerns raised by farming and business groups about the potential impact of earlier proposals.
Where the value of qualifying assets exceed £2.5 million, relief will remain available but at a reduced rate of 50%. This results in an effective IHT charge of 20% on the excess value, compared with the standard rate of 40%.
A welcomed change!
A largely campaigned and welcome change in the 2025 Autumn Budget also declared married couples and civil partners can transfer unused reliefs and allowances. As a result, up to £5 million of qualifying agricultural and business assets may be transferred between spouses without any tax consequences. In addition, when both spouses’ standard nil rate bands (NRB) of £325,000 are considered, a married couple could have no IHT liability on assets with a combined value of up to £5.65 million. It is important to note this would be dependent on the nature and structure of the estate which we can assist you calculating.
Other aspects of Inheritance Tax remain unchanged
The NRB remains at £325,000 per individual, while the residence nil rate band (RNRB) continues at £175,000 where a main residence is passed to direct descendants, although this RNRB is still subject to tapering for larger estates exceeding £2m. These thresholds are frozen until at least April 2030as portrayed on the new budget, and the standard rate of IHT has not changed, remaining at 40%.
Greater certainty for long-term succession and estate planning.
The increase to £2.5 million, significantly reduces the number of family farms and businesses likely to face Inheritance Tax charges and provides greater certainty for long-term succession and estate planning.
Conclusion
It is highly important that individuals with agricultural or business assets approaching these levels review their arrangements ahead of April 2026 to ensure the appropriate planning is in place.
Next steps
At ETC Tax, we have advised numerous individuals and businesses on their IHT affairs, helping many families plan for their future and are well placed to manage this process. Should you require any assistance, please do not hesitate to get in touch.
This tax relief allows individuals to pass on certain business assets to their heirs or beneficiaries without incurring inheritance tax.
As the 6 April deadline approaches next year, uncertainty around BPR and trust planning is at an all-time high. This Q&A breaks down the most common concerns, providing clarity on what can still be done before the changes take effect and where specialist advice may be essential.
Q
Do I have to use all my BPR at once?
A
No. You can transfer only part of a business or business property. BPR is not an “allowance” — it applies to whatever you transfer, whether all or part.
Q
If I transfer business assets into a trust before 6 April, will BPR apply immediately?
A
Usually yes — provided:
you’ve owned the assets for two years, and
they qualify as relevant business property.
This can reduce the taxable value of the transfer to zero, avoiding the 20% lifetime IHT charge.
Q
Will transferring to a trust restart the two-year ownership clock?
A
No, not normally.
The trust can inherit your original ownership period if the business interest remains essentially the same.
However, if you transfer different assets or restructure significantly, the clock may restart.
Q
Will a transfer into a trust trigger immediate inheritance tax?
A
It can, but not if BPR reduces the value to zero.
If the business doesn’t qualify or only qualifies for 50% BPR, there may still be a charge.
Q
Do I need to complete the transfer before 6 April?
A
Not for BPR itself, but yes if:
you want the transfer to count as part of this tax year,
you are planning multiple trust entries over tax years,
you want the transfer done before potential rule changes or budget updates.
Q
Does BPR apply differently for a gift to children versus a trust?
A
No.
The type of transfer doesn’t affect whether BPR applies.
But the IHT treatment (PET vs. CLT) does differ.
Q
Will I lose BPR if the business is sold soon after I put it into trust?
A
Yes.
If the trustees sell the business, the trust may lose BPR and become exposed to IHT charges later.
Q
Can I put business property into more than one trust and still get BPR?
A
Yes, as long as each transfer qualifies at the time.
However, creating multiple trusts may impact:
trust reporting
10-year charges
effective nil-rate band allocation
Q
Does the business need to be valued before 6 April?
A
Yes, if:
you’re transferring before year end, or
you need evidence for HMRC.
A realistic valuation helps avoid disputes.
Q
Does CGT apply when transferring to a trust?
A
It can, but Hold-Over Relief is usually available for BPR-qualifying business assets.
This avoids immediate CGT.
Q
Do I still need to worry about the seven-year rule?
A
Yes.
A transfer into a trust is a CLT, not a PET.
The CLT limit is £325,000 per individual and refreshes every seven years.
Q
What happens if I don’t act before 6 April?
A
Nothing dramatic, BPR remains available, but tax-year planning opportunities might be lost. Currently 100% of all the value of relevant business property qualifies for relief. From 6 April 2026 this is capped at £1m per individual, with any excess only attracting 50% relief.
Take a look at our handy check list : BPR & Trust Planning Before 6 April
Confirm Eligibility for BPR
Ensure the asset qualifies as “relevant business property.”
Check the business is predominantly trading, not investment-based.
Confirm the asset has been owned for at least two years.
Decide the Type of Transfer
Gift to an individual (PET)
Transfer into a trust (CLT)
Sale or restructuring of business interests
Decide whether the transfer needs to be completed before 6 April for tax-year planning.
Assess Inheritance Tax Implications
Will the transfer create an immediate lifetime IHT charge?
Confirm whether BPR reduces the transfer value to £0, avoiding the 20% CLT charge.
Consider the impact on the nil-rate band.
Consider Capital Gains Tax (CGT)
Determine whether Hold-Over Relief is available.
If the transfer is before year-end, check if CGT planning is needed for this tax year.
Check Whether Timing Affects Relief
Confirm that BPR will still apply at the date of the transfer, not just at death.
Ensure any trust transfers are completed before 6 April if that timing is strategically beneficial.
Understand the Effect of Using BPR
Decide how much BPR-qualifying property to transfer (you do not need to use it all at once).
Check whether multiple trusts are intended and whether this affects the 10-year trust charge later.
Confirm Business Structure Issues
Has the business changed recently (e.g., trading levels, assets sold)?
Will the business be sold soon → does that create a risk of losing BPR?
Ensure corporate documents allow the transfer (company articles, shareholder agreements).
Get a Reliable Valuation
Ensure the valuation is up-to-date and supportable if HMRC reviews it.
Valuation may affect IHT on CLTs and future trust charges.
Case of the month – Inheritance Tax Planning and Family Provision for a Vulnerable Beneficiary
Introduction
Our client approached us, intending to understand their current exposure to Inheritance Tax (IHT) and explore strategies to preserve and pass on wealth in a tax-efficient manner to their adult child who is unable to work. Ensuring long-term financial provision for him was a central concern in their planning.
Their estate includes a mix of cash, pensions, ISAs, and property, both residential and investment. While both have UK domicile and residency, they also intend to purchase a property in UAE for seasonal use. Wills are in place but require updating, and they are seeking clarity on structuring their estate for maximum tax efficiency, particularly with their childs welfare in mind.
The Issue
Based on the current value of their estate, we calculated an IHT liability of approximately over £1 million, leaving only 67% of the estate available for distribution. Our clients wished to explore ways to reduce this liability, safeguard their childs financial future without impacting entitlement to benefits, and understand the implications of setting up a Family Investment Company (FIC) or trust.
Our Solution
We advised on several key strategies to reduce their IHT exposure, while preserving control and flexibility:
Lifetime Gifts of Cash
The estate contains approximately £310,000 in liquid cash. We recommended making significant cash gifts now, as these qualify as Potentially Exempt Transfers (PETs). Provided they survive seven years from the date of gifting, these sums would fall outside their estates entirely. Taper relief would apply after three years for gifts exceeding the nil-rate band.
Regular Gifts Out of Income
With a gross salary of over £100,000 and modest living costs, our client can make regular gifts from surplus income. Provided these are consistent and well-documented, they are exempt from IHT, regardless of value. This approach is particularly effective for long-term planning.
Family Investment Company (FIC)
We explored the use of a FIC as a vehicle for holding investments, potentially funded via loans from surplus income or pension lump sums. A FIC allows the client to retain control through voting shares, while future growth can be attributed to a separate share class held by or for the benefit of their child. If the loan account is gifted, this becomes a PET, further reducing the estate’s value.
Use of Trusts
Trusts offer a valuable alternative or complement to a FIC. Each client could contribute up to £325,000 without incurring an immediate IHT charge. Trusts may also be more appropriate for vulnerable beneficiaries, depending on benefit considerations and access controls.
Will Planning and Property Structuring
We advised updating the wills to reflect current intentions, ensuring the main residence passes to their son. Holding the home as tenants in common and considering a co-occupation agreement may also support their goals. Plans to purchase a property in UAE should consider whether to hold it personally or via a company, given it remains within the UK IHT net due to domicile.
The Outcome
Through a combination of gifts, structural planning, and careful estate design, our clients could reduce their IHT liability from £1.078 million to approximately £388,000, a potential saving of £700,000. This ensures a greater portion of their estate (up to 80%) is passed on, with appropriate safeguards in place for their son’s financial future.
Major reforms to inheritance tax (IHT) are set to take effect
Major reforms to inheritance tax (IHT) are set to take effect in April 2026 and April 2027, with significant implications for business owners and investors. The government’s changes to Business Relief (BR) (formally known as Business Property Relief) could largely increase the taxable value of many estates. With IHT charged at 40%, the stakes are high.
This article explores what’s changing and why it matters for you.
APRIL 2026
What’s changing with Business Relief?
Currently, Business Relief allows shares in trading companies or trading groups to be passed on free of IHT. Broadly, in practice, this means:
If someone owns shares in a trading company (or a qualifying trading group) worth £10 million, the full £10 million is exempt from IHT.
The value is treated as being outside of their estate when they die.
From April 2026, however, the rules will change:
Only the first £1 million of value will qualify for the BR exemption.
Any value above £1 million will still qualify for BR, but at a reduced rate of 50%. The remaining 50% will fall into the estate and potentially face a 40% IHT charge.
There is currently no ability to transfer the £1m allowance onto a spouse or civil partner.
This means that from April 2026, 50% of £9m of a £10m business could be taxable, creating an IHT liability of £1.8m on death.
This represents a significant shift in how business wealth is taxed, highlighting the need for proactive planning before April 2026 for business owners.
How These Changes Apply to Agricultural Relief
Agricultural Relief works similarly to Business Relief, providing up to 100% exemption from IHT for qualifying agricultural property. However, like Business Relief, Agricultural Relief will also be affected by the tightening of rules in the same way.
Agricultural relief is primarily available in two scenarios;
To a farmer who owns the land and buildings and uses them in their own business; and
To a landowner who is letting out agricultural land or buildings to a farmer.
APR already requires strict eligibility conditions, so landowners and farmers should review whether their property qualifies under current rules and explore succession strategies before any changes are implemented.
APRIL 2027
Pensions and IHT
Pensions have long been a valuable tool in succession planning because, under current rules, unspent defined contribution pension pots were outside of the estate for IHT purposes. This means they can pass to beneficiaries without facing inheritance tax.
Current Rules
In defined contribution schemes, any unused scheme funds can normally be passed on and paid out to beneficiaries in the form of death benefits.
In defined benefit schemes, there is no dedicated fund that can be inherited, but there may be specific death benefits which become payable, such as a lump sum death benefit or a set amount of pension to a dependant.
Generally, if the pension holder dies before age 75, beneficiaries can usually take the remaining pension funds tax-free.
If death occurs after age 75, benefits are not subject to IHT, but they are taxed at the beneficiary’s marginal income tax rate when withdrawn.
Upcoming Changes
The government has announced significant reforms that will impact pensions and inheritance tax:
From 6 April 2027, most unused pension funds and death benefits will be included within the value of the estate for IHT purposes.
This means they could be subject to a 40% IHT charge. For those who pass after age 75%, this would apply then before any income tax is applied, creating a potential double taxation issue.
For example, if a pension holder dies after age 75 with £100,000 in their pension pot, and the beneficiary is an additional rate taxpayer, the effective tax rate could be as high as 67%, with only £33,000 remaining for the beneficiary.
These changes mean pensions will no longer be a guaranteed IHT-free inheritance, and they are likely to become a core part of estate planning discussions going forward.
It is driving individuals to now reconsider their retirement plans, particularly concerning how they fund their lifestyle. This was one of the aims of the government’s decision – to ensure pension pots are being used for their intended purpose: to provide for retirement, rather than being used primarily as tools for passing on tax-free wealth.
What other changes are on the horizon?
The Autumn Budget 2025 is attracting significant attention, with Chancellor Rachel Reeves expected to make large changes amid speculation of substantial tax increases under the Labour government. While inheritance tax (IHT) was a major focus of the previous budget, this year’s budget is likely to prioritise other taxes. Nevertheless, some IHT reforms may still be introduced. Analysts have identified several potential areas of focus:
The freeze on tax-free allowances (nil-rate bands) was previously extended until 2030, which continues to expose estates to the effects of fiscal drag. It’s possible this freeze could be extended further.
Under current rules, individuals can make lifetime gifts free of IHT provided they survive for seven years after the gift. There is currently no limit on the value of these gifts if this timeframe is met.
There is discussion within the government about tightening these gifting rules, which could potentially include a lifetime cap on amounts that can be gifted before death.
Taper relief currently reduces the rate of IHT applied to gifts if the donor dies between three and seven years after making the gift. There is the potential for them to reconsider this relief.
Given the pace of potential reforms, individuals should review estate planning strategies now rather than wait for the Autumn Budget.
Here at ETC Tax, we understand that these upcoming inheritance tax reforms will affect individuals in different ways depending on their circumstances. We can discuss your specific situation, explain how these changes might impact you, and help identify strategies to protect your wealth and achieve your estate planning goals. Do not hesitate to get in touch today if you would like to discuss your affairs.
UK government will change how inheritance tax applies to pensions
From 6 April 2027, the UK government will change how inheritance tax (IHT) applies to pensions. Under the new rules, most unused defined contribution pension funds will be included in a person’s estate on death, making them potentially liable to IHT for the first time.
This marks a major shift in estate planning and will affect thousands of families each year, particularly those with larger pension pots.
Current Position: Pensions and IHT
At present, defined contribution pensions (such as personal pensions and SIPPs) are generally not counted as part of the estate for IHT purposes. If someone dies before age 75, their pension savings can usually be passed to beneficiaries completely tax-free. If they die after 75, the funds remain outside the IHT net, although income tax applies when the beneficiary draws money from the pot.
For many, this has made pensions a highly efficient way to pass on wealth.
What Will Change in 2027?
Starting in April 2027, most unused pension funds will be treated as part of the deceased’s estate. This means that, if the estate exceeds the IHT threshold (currently £325,000 plus any residence allowance), the pension pot may be taxed at up to 40%.
Beneficiaries could still face income tax on any money they withdraw, meaning some inherited pension savings may now be taxed twice… first under IHT, then under income tax rules.
Who Will Be Affected?
This change is likely to affect wealthier households or those who have built up significant pension savings without drawing on them. Government figures suggest more than 10,000 estates each year will now face IHT solely due to pension wealth, with thousands more seeing higher tax bills overall.
Added Complexity for Executors
Under the new rules, responsibility for reporting pensions shifts from pension providers to executors. Personal representatives of the estate will need to locate all relevant pensions, obtain valuations, and report them to HMRC, adding further complexity to an already stressful process.
Penalties may apply if these details aren’t provided within the required time frame, even if the estate isn’t large enough to trigger a tax bill.
Planning Considerations
With the changes now confirmed, individuals should review their estate plans and pension strategies. Some may wish to draw down more of their pension in retirement, rather than leaving it untouched. Others may consider lifetime gifting of other assets, using trusts, or insurance policies to help cover future IHT costs.
It’s also essential to update nomination forms and keep records of all pension schemes to help executors handle future reporting requirements.
In Summary
The government’s decision to include pensions within IHT from April 2027 is a significant development. Pensions will no longer be entirely tax-sheltered at death, and this may affect how people save, spend, and plan for the next generation.
Those with substantial pension savings should act now to ensure they make the most of existing reliefs and avoid surprises later. Professional advice can help identify practical options to reduce potential tax exposure and ease the burden on future beneficiaries.
Next Steps
If you are affected by the new rules or wish to explore your planning options, please contact us at ETC Tax for tailored guidance.
When it comes to planning for the future, one question we hear time and again is:
“Should I put my assets into a trust?”
It’s a great question and a surprisingly common one, especially as families become more aware of inheritance tax (IHT) and the need to protect their wealth for future generations. Trusts have long been a feature of estate planning for the wealthy, but they’re no longer just being used by the ‘super rich’. Today, they’re being used by families of all sizes who want to manage their assets more thoughtfully and more tax-efficiently.
But as with most things in tax, it’s not a simple yes or no.
What exactly is a trust and why do people use them?
Imagine you’ve worked hard to build up a nest egg, perhaps a family home, some savings, maybe a portfolio of investments. Now imagine you want to pass that wealth on, in your own time. While there are many options, a trust can be a popular one.
A trust is like a protective wrapper around your assets which allows you to:
Place specified assets into trust;
Appoint trustees to look after those assets;
Decide who should ultimately benefit from those assets (whether its your children, grandchildren or someone else entirely)
In doing so, it creates a structure which separates beneficial and legal ownership, giving you control over how and when your wealth is passed on.
On top of this, trusts can also help to reduce inheritance tax. For example, certain types of trusts allow you to move assets out of your estate, meaning they’re no longer counted when HMRC calculates the IHT bill on your death. If you survive for seven years after the transfer, those assets may fall completely outside your estate, potentially saving your family thousands (or more) in tax.
Many people also use them to protect young or vulnerable beneficiaries, particularly where an outright inheritance might not be wise. Others use them to keep assets in the family, especially in situations involving divorce, remarriage, or business risk. Some simply want peace of mind, knowing their legacy will be handled responsibly, even after they’re gone.
So, is it the right move?
It depends and this is where things get interesting.
Transferring assets into a trust can be incredibly valuable, but it isn’t always straightforward. For one thing, the transfer itself can come with tax consequences. You might trigger an immediate charge to inheritance tax if you put too much into a trust at once. There may be capital gains tax implications too, if appropriate reliefs aren’t considered.
Additionally, a trust should never be set up for your own benefit, as this can have adverse tax consequences.
Then there’s the trust itself. It’s not a ‘set it up and forget about it’ arrangement. Trustees have legal duties, tax reporting obligations, and the responsibility of managing the trust’s assets in line with your wishes. Certain trusts also face their own ongoing tax regime including charges every ten years, and when assets are taken out.
That’s not to say any of this is a deal-breaker. Far from it. But it does mean you need to go into it with your eyes open, and ideally, with professional guidance.
The right strategy starts with the right advice
Trusts are not about hiding money or avoiding tax. They’re about planning sensibly, thinking ahead, structuring your wealth in a way that reflects your values, and making sure your family is looked after when you’re no longer here to do it yourself.
If you’re worried about inheritance tax, concerned about passing money to the next generation too soon, or simply want more control over what happens to your assets, then a trust might be worth exploring. But it’s not the kind of thing you want to Google your way through.
Next Steps
At ETC, we help clients understand whether a trust is the right fit for their estate and if it is, we make sure it’s set up properly, tax-efficiently, and with a clear long-term plan in place.
Every family is different. Every estate is different. And every trust should be tailored to match.
If you want to discuss whether a trust is right for you, do not hesitate to get in touch.
