Time to Act: Major Inheritance Tax Changes on the Horizon

HMRC has published draft legislation which will significantly reshape inheritance tax (IHT) from April 2026 onwards. These changes may affect many more families and estates than the government predicts. Now is the time to review your position and plan ahead.

On 21 July 2025, HMRC and the Treasury released draft legislation and accompanying policy papers, as part of their preparations for introducing wide-reaching inheritance tax changes.

This marks a pivotal moment, and the consultation window is now open and runs until 15 September 2025 although it is fully expected that the changes to BPR and APR, and bringing unused pensions within the scope of IHT, will all come into force.  It is important to act now.  There could also be further announcements at the Autumn Budget 2025. 

These changes will have a wide-reaching effect.  Particularly:

Business Property Relief (BPR) and Agricultural Property Relief (APR) – from 6 April 2026

• A new £1 million combined allowance will apply to qualifying business and agricultural property.
• Any qualifying property above that threshold will attract relief at a reduced rate of only 50% (rather than the current 100%).
• Shares held in AIM portfolios will only attract relief at 50% instead of the current 100%.
• A key facilitation: estates with such assets should be able to pay the IHT over 10 equal annual, interest‑free instalments.      This does not lift the burden however, so it is imperative to plan now and consider gifting, succession and wider protection planning.

Pensions and Death Benefits – from 6 April 2027

• Most unused pension funds and death benefits will be brought into the scope of an individual’s estate for IHT purposes.
• Personal representatives will be liable to report and pay any IHT due on these funds.  This is a shift from the original announcements which suggested that pension scheme administrators would be liable.  A small welcome change.
• Death‑in‑service benefits paid from a registered pension scheme should remain excluded.

Why this matters

No one is immune. Even those without farms, businesses, or large estates could be impacted, especially if they hold significant pension assets. The threshold freezes and asset inflation mean that more estates are at risk.

• IHT receipts between April to July 2025 rose by £200 million (to £3.1 billion)—a 6.9% increase year‑on‑year—and are projected to reach £9.1 billion in 2025/26 and over £14 billion by 2029/30.  This is despite the government’s predictions that very few additional estates would be affected by these IHT changes.
• Increasing interest in IHT planning is already evident, as more estates succumb to the tax due to frozen thresholds and property value growth.

What to do now

• Review your IHT estate assets, including business, agricultural, and pension assets and assess your IHT exposure.  We can assist you with this at Hurst.
• Reassess BPR and APR planning—are you affected by the new £1 million allowance, does it increase your IHT exposure and remember that this £1 million allowance is not transferable between spouses on death, so your wills are likely to need revisiting too.
• Check pension arrangements—including death benefits that may now attract IHT from April 2027.  Consider pension withdrawals and gifting, making use of your tax-free cash and check your nominations.
• Update wills, trusts, gifting strategies, and consider life insurance or trusts to mitigate future tax exposure.

Looking ahead—autumn budget 2025

The Autumn Budget, expected this October or November 2025, may introduce further changes—not just to IHT, but to broader tax policy. Early indications suggest:

• The Treasury is considering reforms to lifetime gifts, possibly introducing a cap or extending the seven‑year period, with some proposals suggesting up to 14 years.
• Additional pressure is on capital gains, pensions, and property taxes as well, being the areas for Rachel Reeves to focus on if she must continue to avoid hitting ‘working people’ with tax rises.
• With the government under fiscal pressure—facing a £40 billion shortfall ahead of the Budget—and constrained from raising income tax, VAT, or NI, they are looking to wealth and property tax reforms.

It is therefore vital for all clients to act now—before legislative and fiscal tightening makes proactive planning more difficult.  There is a window of opportunity for you leading up to April 2026.

Final thoughts

These developments are significant, and we are already seeing negative impacts on UK businesses and economic growth. The draft legislation from 21 July 2025 is now live for consultation, and the Autumn Budget 2025 may bring further surprises. We strongly recommend immediate reviews, action and planning to protect your estate, family and your legacy.

If you would like to arrange a review or need help navigating these changes, please reach out at your earliest convenience. imagine@hurst.co.uk.