Inheritance is more than just a financial transaction it’s a symbol of legacy, family history, and future security. However, for those expecting to inherit, changes in the UK’s Inheritance Tax (IHT) rules in 2026 may alter the landscape of how much will actually be passed down. HM Revenue & Customs has announced key reforms that will impact a variety of assets, from family businesses to pensions and trusts. If you or your heirs are expecting an inheritance in the coming years, it’s crucial to understand what these changes mean for your legacy.
Inheritance Tax Rules Set to Change in 2026
Inheritance Tax plays an essential role in the UK economy, funding crucial public services and helping reduce wealth inequality. While taxes on inheritance may seem burdensome to some, they serve important social and economic functions, including:
| Function | Details |
|---|---|
| Funding Public Services | IHT contributes to government revenue, which helps fund health, education, and other public services. |
| Wealth Redistribution | Helps reduce wealth disparities across generations. |
| Encouraging Charitable Giving | Tax relief on charitable donations incentivizes philanthropy and benefits the community. |
Key Inheritance Tax Changes
The most anticipated changes to Inheritance Tax stem from the Autumn Budget 2025, set to impact families, businesses, and individuals with significant assets. For many, the changes will mark the end of a relatively stable tax landscape for inheritance and the beginning of a more complex system. According to Oldfield Accountancy & Advisory, the main groups affected by these reforms include:
| Group | Impact |
|---|---|
| Family farms worth more than £1 million | Will face reduced relief rates on agricultural assets. |
| Family businesses and partnerships | Business reliefs may be reduced for larger estates. |
| Trusts with company shares or land | Changes in trust structures will affect tax liabilities. |
| Individuals with substantial investments or pensions | Higher tax bills on pension savings post-death. |
| Limited companies | Changes in asset reliefs and tax rates for companies. |
What Will Change in April 2026?
Here’s a breakdown of the key rule changes that will directly impact future heirs in 2026 and beyond:
| Change | Current Rules | New Rules (2026) |
|---|---|---|
| Business and Agricultural Property Relief (BPR and APR) | 100% relief for qualifying assets up to £1 million. | Assets above £1 million will be subject to 50% relief, and anything above that will incur 20% tax. |
| Pensions | Generally not subject to IHT if left to beneficiaries. | Pensions will be taxed after death from April 2027. |
| Trusts | Trusts settled before 29 October 2024 are exempt from IHT up to a £1 million threshold. | Trusts settled after 30 October 2024 will see their £1 million exemption split, potentially reducing benefits. |
Impact on Heirs in 2026
The reforms mean that many heirs may have to pay significantly more in inheritance tax than before, particularly those inheriting family businesses, farms, or large pension pots. Financial planners suggest reviewing succession plans ahead of time to ensure that assets are transferred in the most tax-efficient way possible.
Here are some potential impacts on future heirs:
| Impact | Who is Affected? |
|---|---|
| Increased Tax Liabilities | Heirs inheriting businesses or farms worth over £1 million. |
| Revised Trust Planning | Individuals with trusts settled after 30 October 2024. |
| Pension Tax Bills | Beneficiaries of large pension pots, especially after April 2027. |
What Should Heirs and Executors Do Now?
To prepare for the changes coming in April 2026, consider the following steps:
| Action | Details |
|---|---|
| Review Wills and Trusts | Update your will and trust structures to align with the new tax rules. |
| Consult a Tax Professional | Seek expert advice to optimize estate planning and minimize tax liabilities. |
| Consider Lifetime Gifting | Use the lifetime gifting exemptions to reduce the taxable estate before the new rules come into effect. |
| Spend Pension Savings Wisely | For those with large pension pots, consider drawing down or using pension savings before April 2027 to avoid penalties. |
Disclaimer
This article is for informational purposes only and does not constitute tax advice. It is important to consult HMRC guidance or a professional tax adviser to understand how these changes will affect your personal situation. The rules outlined here are subject to change based on government policies and future budget announcements.
FAQs
Can I transfer unused allowances to my spouse?
Under the new rules, unused allowances for business or agricultural assets will not be transferable to a surviving spouse.
Should I revise my estate plan now?
Yes, reviewing your will, trusts, and business succession plans before the changes take effect in 2026 is crucial to minimize tax liabilities.
How will pensions be taxed after death?
Pensions will be subject to Inheritance Tax starting in 2027, potentially leading to large tax bills for beneficiaries.
When do the new Inheritance Tax rules come into effect?
The changes will begin in April 2026, with some pension-related rules rolling out in April 2027.
What is Business and Agricultural Property Relief (BPR and APR)?
These reliefs allow businesses and farms to be passed on without incurring Inheritance Tax, up to a £1 million threshold.