Update (July 2026): Since this article was first published, the Government has increased the proposed £1 million inheritance tax allowance to £2.5 million (announced on 23 December 2025 and enacted in the Finance Act 2026, with effect from 6 April 2026). Any unused allowance is also now transferable between spouses and civil partners. The figures below have been updated accordingly.
In my dispatch dated June 3rd, I said I would take a closer look at Rachel Reeves’s changes to inheritance tax (IHT), which became law on 6th April 2026. These changes impact IHT planning, especially in relation to Business Property Relief (BPR), pension pots, and lifetime gifts. Here are the key updates and where things currently stand.
Business Property Relief
BPR remains an essential IHT planning tool, allowing certain business assets to be exempt from IHT. However, from April 2026, the Government will introduce a cap on the amount of business and agricultural assets that qualify for full relief.
Up to £2.5 million in qualifying business or agricultural assets (a combined allowance, originally proposed at £1 million) receives 100% relief.
Any amount above £2.5 million only qualifies for 50% relief; that is, the effective rate of IHT on the excess is 20% rather than 40%. Any unused allowance can be transferred to a surviving spouse or civil partner.
These measures will significantly affect those with trading companies or agricultural estates who have traditionally relied on full BPR for IHT mitigation. Let us look at an example. Jeremy Clarkson’s farm – Diddly Squat, Chadlington, near Chipping Norton, Oxfordshire is currently worth about £12.5 million. Here are broad brush calculations of IHT payable on death:
| Up until 5/4/2026 (£000’s) | From 6/4/2026 (£000’s) | |
|---|---|---|
| Value on death | 12,500 | 12,500 |
| Less: nil-rate band | (325) | (325) |
| Taxable estate | 12,175 | 12,175 |
| IHT on the first £2,500,000 (100% relief) | 0 | 0 |
| IHT on the remainder at the effective 20% rate | 0 | 1,935 |
| Total IHT payable (payable over 10 years) | 0 | 1,935 |
| IHT as a percentage of the estate | 0% | c.15% |
Broad-brush illustration using a single £2.5 million allowance. A married owner or civil partner could benefit from a transferred allowance in addition, reducing the bill further. Figures are simplified and for illustration only.
Although this IHT bill can be paid over a period of 10 years, many trading enterprises – farmers in particular – simply don’t have the resources to pay the level of tax (Another death knell to our precious farming community?).
Gifts on Death or in Lifetime: Pension Pots
In a previous post, I highlighted a huge blow to those with unused private pensions. From 6th April 2027, they will be fully liable to IHT (except pension pots which are bequeathed to the surviving spouse).
 "Inheritance Tax Reforms: What’s Changing and What You Need to Know in 2025 | Hamilton Financial")
Lifetime Gifts
The Office of Tax Simplification (OTS) recommended reducing the seven-year IHT exemption period for lifetime gifts to five years. This change has not been adopted, and the seven-year rule remains in place (it is worth remembering that just as sales to third parties are liable to Capital Gains Tax, so are gifts).
Non-Domiciled Individuals and Inheritance Tax
Although not part of the original OTS’s recommendations, it’s important to mention that since April 2025, the UK has moved to a residency-based system for IHT. Individuals who have been UK residents for at least 10 of the last 20 years will now be liable for IHT on worldwide assets, regardless of domicile status. Those leaving the UK will continue to be exposed to IHT for up to 10 years after departure. This is not a problem for any of our clients, as far as I know! However, it is definitely yet another disincentive for wealthy “non-doms” to continue to live in the UK or to attract new ones. Economists are already beginning to count the cost of this attack on the wealthy. On paper it looks eminently sensible but never forget that 30% of the UK’s income tax take is provided by 1% of the population – this measure could easily backfire!
Conclusion
These new IHT measures are likely to negatively impact taxpayers deemed to be wealthy, especially family-owned businesses and farmers. Here is the view of Matthew Mills, an entrepreneur who could speak for any one of the thousands at the helm of a mid to large sized family firm, worrying about their future. In short, he says: ‘we are the cornerstone of the British economy. To attack the bedrock of the UK is mind-blowingly stupid.’
Postscript: Office of Tax Simplification
I hadn’t realised up until now that there was a branch of the civil service called the Office of Tax Simplification (OTS) — since abolished in 2023. I mention this because, (a) you could have fooled me – we have an absurdly over complicated tax regime and (b) because one of their recommendations for increasing tax was to remove the CGT-free uplift currently applicable on death to assets that had already qualified for BPR or Agricultural Property Relief (APR). It is worth mentioning this because whilst HM Government has so far not implemented this proposal, there is nothing to suggest that this desperately cash poor government won’t implement this measure in the future. This would be another seriously painful tax increase for entrepreneurs and families to swallow.
Andrew Hamilton
