Major Inheritance Tax Changes Ahead | What You Need to Know About BPR, APR and Pensions

From 2026 and 2027, significant changes to Inheritance Tax (IHT) rules in the UK will come into effect—changes that could impact thousands of families, business owners, and pension holders. If you own agricultural or business assets, or have a pension pot you plan to pass on, it’s time to take a closer look at your estate planning.

What Is Changing?

1. Business Property Relief (BPR) and Agricultural Property Relief (APR)

Currently, BPR and APR can reduce the value of qualifying business or agricultural assets by up to 100% for IHT purposes. This has been a vital tool for family farms and businesses to pass on assets without a hefty tax bill.

From 6 April 2026, the government will introduce a £1 million cap on the amount of BPR and APR that can be claimed at the 100% rate. Any value above this threshold will only qualify for 50% relief, meaning the excess could be taxed at an effective rate of 20%.

For example, if you leave £2 million in qualifying business assets, the first £1 million may be fully exempt, but the remaining £1 million could face a 20% IHT charge—equating to £200,000.

Additionally, shares not listed on recognised stock exchanges (such as AIM) will only qualify for 50% relief, regardless of value.

2. Pensions and Inheritance Tax

From 6 April 2027, unused pension funds and death benefits will no longer be exempt from IHT. These assets will now be included in the value of your estate and taxed accordingly.

This change affects most defined contribution pensions, which have traditionally been used as a tax-efficient way to pass on wealth. Whilst death-in-service benefits and certain defined benefit pensions are excluded, the majority of pension pots will soon be subject to IHT if they remain unused at death.

The responsibility for reporting and paying this tax will fall on the personal representatives of the estate—not the pension provider.

Why Is This Happening?

The government’s aim is to target reliefs more effectively and reduce the use of pensions as a tax planning tool rather than a retirement fund. These reforms are expected to affect a relatively small proportion of estates—around 2,000 estates per year for BPR/APR and 10,500 estates for pensions—but the financial impact on those affected could be substantial.

What Should You Do?

These changes introduce new complexities into estate planning if you:

• Own a family business or farm
• Hold significant unlisted shares
• Have a large pension pot
• Have created or are considering creating trusts

… so now is the time to review your estate plan.

There may be opportunities to gift assets, restructure ownership, or update your Will to make the most of available reliefs before the new rules take effect. For example, transferring assets into trust before April 2026 could still benefit from the current 100% relief, provided certain conditions are met.

We Can Help You:

• Understand how the new rules apply to your specific circumstances
• Maximise available reliefs and exemptions
• Plan for future tax liabilities
• Update your Will and trust arrangements accordingly

These reforms are complex and time-sensitive. Taking action now could save your loved ones from unnecessary tax burdens in the future. Contact us to arrange a consultation and ensure your estate is protected under the new rules.