Inheritance Tax Changes from April 2026: New £2.5 Million Cap on Business and Agricultural Relief

Author: Alistair Robertson-Göpffarth, Consultant Private Client Solicitor & Notary Public | Last updated: 20th August 2026 | Read time: 8 minutes

From 6 April 2026, only the first £2.5 million of combined business and agricultural assets in your estate will qualify for full relief from inheritance tax. If you own a business, a farm, or land, here’s what’s changing, who it affects, and what to check now.

Key takeaways

• From 6 April 2026, 100% relief on combined Business Property Relief and Agricultural Property Relief is capped at £2.5 million per person. Anything above that gets 50% relief, an effective 20% tax rate.
• The £2.5 million allowance can be transferred between spouses and civil partners, potentially giving a couple up to £5 million of qualifying assets at 100% relief.
• AIM shares and other unlisted-market shares will only qualify for 50% relief, regardless of value.
• Trusts holding business or agricultural property face their own £2.5 million cap, and how existing trusts are treated can vary depending on when they were set up.
• Charitable gifts left on discretionary trust in a will may no longer automatically qualify for the charity exemption unless distributed to a qualifying charity within two years of death.

The short answer

For many years, Business Property Relief (BPR) and Agricultural Property Relief (APR) have been central to estate planning, often allowing valuable business and farming assets to pass between generations with little or no inheritance tax (IHT) liability. As of 6 April 2026, that has changed significantly.

A new £2.5 million cap on 100% relief means that, while the headline 40% rate of IHT is unchanged, more estates holding business or agricultural assets may now face a tax charge where none was previously expected.

The changes also reach further than BPR and APR alone: AIM shares, trusts, and even charitable gifts left in a will are affected. If your estate planning has relied on any of these, it is worth reviewing now, well ahead of the April 2026 start date.

Key figures:

• £2,500,000 — the new cap on 100% relief for combined business and agricultural assets, per person
• £300,000 — example IHT bill on an estate with £4 million of qualifying assets, once the cap applies
• 20% — the effective tax rate on qualifying assets above the £2.5 million cap

What is inheritance tax?

Inheritance tax (IHT) is charged at 40% on the value of an estate above the available tax-free thresholds. Those thresholds currently stand at £325,000 (the Nil Rate Band) and £175,000 (the Residence Nil Rate Band), where a main residence is left to direct descendants.

When combined and transferred between spouses or civil partners, this can allow up to £1 million to pass free of IHT in certain circumstances.

These thresholds are frozen until at least April 2030, and in some cases beyond. As a result, rising property and business asset values are bringing more estates within the scope of IHT each year, a process often referred to as “fiscal drag”.

The role of Business Property Relief and Agricultural Property Relief in estate planning

BPR and APR are long-established reliefs designed to protect family businesses and farms from being broken up to meet an IHT liability.

• BPR applies to qualifying business interests, including shares in private trading companies and partnership interests.
• APR applies to agricultural land and property used for farming purposes.

Historically, both reliefs could apply at 100%, meaning qualifying assets were effectively removed from the taxable estate altogether. For many families, this has been the cornerstone of succession planning.

The new £2.5 million cap on 100% relief

As of 6 April 2026, individuals are entitled to 100% relief on combined BPR and APR assets up to a limit of £2.5 million. This is a cumulative cap: it applies to the total value of qualifying business and agricultural property within an estate.

Once that threshold is exceeded, the rate of relief is reduced. Assets above £2.5 million will only qualify for 50% relief, meaning half of their value is exposed to IHT at the standard rate of 40%. In effect, this creates a 20% tax charge on the excess.

This is a notable departure from the previous position, where there was no upper limit on the amount of property that could qualify for 100% relief.

A practical illustration

Consider an estate that includes £4 million of qualifying business and agricultural assets:

The key point: For many business owners and landowners, this represents a significant shift in expected outcomes. Estates that would previously have passed free of IHT may now face a six-figure bill.

Position for spouses and civil partners

The rules preserve the ability to transfer unused allowances between spouses and civil partners. Where assets pass between spouses, either on death or through careful planning, any unused portion of the £2.5 million allowance can be transferred to the survivor.

In practice, this allows a couple to benefit from up to £5 million of qualifying assets passing with 100% relief.

There is also a transitional provision. Where a spouse died before 6 April 2026, they are generally treated as having a full £2.5 million allowance available for transfer, regardless of the value of assets they actually held at the time. If this applies to your family, it is worth having the detail checked, as the transitional rules are technical.

Changes to Alternative Investment Market and other unlisted shares

Another important change affects shares listed on the Alternative Investment Market (AIM) and other markets not designated as “recognised stock exchanges”. Historically, AIM shares have often been used in estate planning because they could qualify for 100% BPR after being held for two years, provided certain conditions were met.

From April 2026, AIM shares and similar unlisted-market shares will qualify for 50% relief only, regardless of value, and separately from the £2.5 million allowance. This creates an effective 20% IHT exposure on such holdings.

For anyone who has invested in an AIM portfolio specifically for IHT mitigation, this is likely to need a reassessment of strategy.

Impact on trusts

The new regime also affects trusts holding business or agricultural property. A £2.5 million cap on 100% relief will generally apply to relevant property trusts, and trusts set up before 30 October 2024 may in some cases be treated differently from those created afterwards. This could create planning opportunities worth exploring with an adviser.

The changes are not entirely favourable, however. Periodic (10-year) and exit charges, which apply to many trusts, are expected to be calculated by reference to the unrelieved value of the assets rather than the value after applying BPR or APR. This means that, even where relief is available, the overall tax cost within a trust structure may increase.

Anti-forestalling measures

To prevent people from taking advantage of the period before April 2026, the legislation included anti-forestalling rules. In broad terms, gifts of business or agricultural property made between 30 October 2024 and 5 April 2026 are still subject to the new rules if the donor died on or after 6 April 2026, and the gift falls within the usual seven-year period for lifetime transfers.

This means that gifts made before April 2026 do not necessarily mean the current, more favourable treatment applies.

Instalment payments and cash flow

One welcome change is the extension of the instalment payment regime. Where IHT is payable on qualifying business or agricultural property, it can generally be paid in 10 annual instalments. As of April 2026, these instalments are interest-free, which may ease the financial burden where an estate is asset-rich but cash-poor.

Charitable giving and other changes

The rules on charitable giving have also been tightened. Direct gifts to qualifying UK charities and community amateur sports clubs remain completely exempt from IHT, with no upper limit.

However, for deaths on or after 6 April 2026, the exemption no longer automatically applies where a will leaves assets to trustees to hold for charitable purposes at their discretion, rather than as a direct gift. This is a common approach where someone wants to benefit several charities and keep the flexibility to change their mind through a letter of wishes.

There is a way to preserve the exemption. The trustees can distribute the gift directly to one or more qualifying charities within two years of death, or the trust itself can meet the conditions to be a registered UK charity. Anyone with this kind of charitable legacy in their will should check it still works as intended.

Separately, there is increased scrutiny of overseas structures, with certain non-UK entities holding agricultural property potentially being brought within the scope of UK IHT. This may affect people who have historically used offshore arrangements as part of their planning.

Common mistakes

• Assuming BPR or APR will shelter the whole estate. Check the combined value of qualifying assets against the £2.5 million cap, not just against the old, uncapped position.
• Treating AIM shares as a straightforward IHT shelter. Review any AIM-based planning, since these shares now qualify for 50% relief only, regardless of value.
• Assuming lifetime gifts before April 2026 are automatically safe. Check the anti-forestalling rules if a gift of business or agricultural property was made after 30 October 2024.
• Leaving a charitable gift on discretionary trust without reviewing it. Confirm whether your will’s charitable provisions still qualify for the exemption, or whether they need to be distributed within two years of death.
• Not planning for how any tax bill will be funded. Even with interest-free instalments available, an estate can still be asset-rich and cash-poor when the first payment falls due.

What should you do now

Given the scale of these changes, it is sensible to review your position sooner rather than later. This is particularly important if:

• the value of your business or agricultural assets exceeds, or is approaching, £2.5 million
• you hold AIM shares as part of your estate planning
• you have assets within a trust structure
• you are relying on BPR or APR to mitigate a potential IHT liability

Early advice can help identify potential risks and ensure your estate planning remains aligned with your objectives.

Get in touch

To discuss how these changes may affect your estate, business, or succession plans, Alistair Robertson-Göpffarth, Consultant Private Client Solicitor at Setfords would be happy to assist.

Get in touch with Alistair

FAQs

Does the £2.5 million cap apply on top of the nil rate bands?

Yes. The £2.5 million allowance for BPR and APR is separate from, and in addition to, the Nil Rate Band and Residence Nil Rate Band available to your estate.

Will my farm definitely be affected by these changes?

Not necessarily. Many farming estates will still pass with no IHT at all once the nil rate bands and the £2.5 million allowance are applied. The impact depends on the combined value of your qualifying business and agricultural assets.

Can I avoid the cap by making lifetime gifts now?

Not automatically. Anti-forestalling rules mean gifts made between 30 October 2024 and 5 April 2026 can still be caught by the new rules if you die on or after 6 April 2026 within the usual seven-year period. Lifetime gifting can still be effective, but it needs planning around these rules.

Does the £2.5 million allowance apply per person or per estate?

It applies per person, and any unused amount can be transferred to a surviving spouse or civil partner, potentially giving a couple up to £5 million combined.

What happens if I already hold AIM shares for IHT planning?

AIM shares now qualify for 50% relief only, regardless of value, rather than the 100% relief previously available after a two-year holding period. It is worth reviewing whether an AIM-based strategy still meets your objectives.

Alistair Robertson-Gopffarth

Consultant Private Client Solicitor & Notary Public

After serving for over 20 years as a submarine warfare officer in the Royal Navy, Alistair requalified as a solicitor in 2015. Alistair focuses his practice on private client and cross-border legal matters, and also qual...

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This article is general information about inheritance tax, Business Property Relief and Agricultural Property Relief in England and Wales and is not legal advice. The law and figures can change, and every situation is different, so please speak to a qualified private client solicitor about your circumstances.