Key Budget Updates
This is an update to our previous article on our website – see here, regarding the proposed inheritance tax changes (IHT) Business Property Relief (BPR) and Agricultural Property Relief (APR) changes that are effective from 6 April 2026.
Firstly, there was no increase to the £1m cap/allowance as many had (very optimistically, in my opinion), hoped for.
However, there was a form of reprieve in the announcement in the Budget that any unused amount of the £1m APR/BPR cap allowance is now transferable between spouses.
By way of a reminder, from 6 April 2026 all individuals will have a cap/allowance of £1m for assets qualifying for 100% BPR or APR – whereas under current rules, this is unlimited. The value of qualifying assets (namely the shares, the business/interest in the business (if unincorporated) or the agricultural land/property itself) that exceeds this cap/allowance is effectively subject to 20% IHT.
These inheritance tax changes significantly alter the planning landscape for business owners and landowners.
These changes are relevant to all owners (shareholder, sole trader or partnership) of an interest in a trading business (not investment – but some business have a mix of activities that can still qualify), and/or owners of agricultural land or property that is used for farming (whether by the owners or used by another party).
Practical Implications for Business and Landowners
As mentioned above, it was announced in the Budget on 26 November 2025 that the £1m APR/BPR cap allowance is now transferable between spouses, so that any unused amount on the 1st spouse’s death (e.g. if qualifying assets pass to the surviving spouse – meaning the spousal exemption applies and APR/BPR is not used), it can be used by the surviving spouse. It has been confirmed that an amount is transferable where a spouse died before 6 April 2026.
This makes planning a bit simpler so that we now no-longer need to be concerned with each spouse owning at least £1m of qualifying assets in lifetime. Previously, lifetime planning ensuring that each spouse owned £1m of qualifying assets was advisable – which required thinking about many other factors and was certainly not as simple as it sounds. Therefore, the Budget announcement was very welcome.
Consequently, the focus is now solely on whether impacted individuals wish to make lifetime gifts of qualifying assets, and if so, consideration around the structure of such gifts. The objective of such gifting being to beat the ‘7 year clock’ (which did not change in the Budget).
Understanding these inheritance tax changes is essential for anyone considering lifetime gifting strategies.
If individuals want to use a formal trust for practical reasons (for example: maintaining control, seeking to protect against the risk of future divorce or bankruptcy a beneficiary may be involved in, protecting against financial immaturity of etc) and such gifts exceed £1m per individual, such gifts should take place before 6 April 2026 (given the ability to transfer more than £1m of qualifying assets into a trust without paying any lifetime inheritance tax charge of 20% on the excess of value gifted over £1m) – after 5 April 2026, a lifetime charge will arise.
Our sister legal business, RRL Wills, can assist with the drafting of the required legal documentation to create the formal trust and facilitate the gift/s.
Any changes (additions of business owners/shareholders, transfer of shares etc) in business ownership arising from implementation of gifts will likely require some corporate legal work and advice (e.g updated Articles of Association and/or shareholders’ agreements for limited companies, or updated partnership agreements for partnerships or sole traders creating partnerships) – we can feed into the engaged corporate lawyer and work closely with them, as required.
Changes in land ownership for gifts of property and land (for gifts of APR qualifying assets) will likely require property legal advice/work. Our sister legal business, RRL Wills, may be able to assist here but this will very much depend on the circumstances. Alternatively, we can work closely with the chosen property lawyer.
Where businesses are owned by non-family members, inheritance tax liabilities arising on shares/partnership interests as a result of these changes will now likely need to be settled via sales of the shares or out of life insurance policy funds. Businesses should review the relevant legal documentation (Articles of Association and/or shareholders’ agreement for limited companies, and partnership agreements for partnerships) should be reviewed to check the facility for estates to sell a deceased owners shares/interest to the company or other business owners and ask clients how this would be funded – adequate life insurance (either taken out by the business itself or co-shareholders/owners) should be considered.
Additional IHT Concerns and Next Steps
Finally, for many (with pension savings), their exposure to inheritance tax is set to significantly increase on 6 April 2027 given the current proposals around the removal of the exemption for funds held in pensions on death. This is making many people really think about IHT, but also gifting assets owned outside of pensions, given them pivoting to a strategy of drawing down on pension funds income tax efficiently to fund living expenditure (where before these funds were being left untouched given the IHT exemption).
These upcoming inheritance tax changes mean proactive planning is more important than ever.
Please feel free to talk through any situation you have with us and our expert Tax Advisers can assist with a practical and detailed tax planning strategy for you.
