Inheritance Tax Changes 2026: What Homeowners Need to Know

What changed on 6 April 2026: APR and BPR

Agricultural Property Relief (APR) and Business Property Relief (BPR) have historically allowed qualifying assets — farmland, agricultural property, and shares in unlisted trading businesses — to pass free of IHT, regardless of their value. From 6 April 2026, that unlimited relief is gone.

The new rules cap 100% relief at £2.5 million of qualifying assets per individual. Above that threshold, relief falls to 50%, meaning an effective IHT rate of 20% applies on the excess. A couple who plan carefully can now pass qualifying assets worth up to £5.65 million tax-free, combining their individual allowances — but that is a ceiling, not a floor, and it represents a significant reduction from the previously unlimited position.

For owners of farming businesses, landed estates, and family trading companies, this change requires urgent review of existing plans. Structures that were designed around unlimited relief may now produce substantially different outcomes.

AIM share portfolios: relief halved

AIM-listed shares that qualify for Business Property Relief have been a popular IHT planning vehicle, since they previously attracted 100% relief after two years of ownership. From April 2026, that relief has been cut to 50%.

The practical effect is an effective IHT rate of 20% on qualifying AIM portfolios at death — a meaningful cost that fundamentally changes the economics of AIM-based IHT planning. Investors and their advisers will need to reassess whether AIM portfolios remain appropriate as a primary IHT mitigation tool, or whether alternative approaches now offer better value.

From April 2027: pension funds in scope for IHT

The larger change — with potentially broader reach — takes effect from 6 April 2027. Under current rules, defined contribution pension funds passed on death sit outside the estate for IHT purposes, making them one of the most tax-efficient assets to leave to beneficiaries. From April 2027, unused pension funds and death benefits from registered pension schemes will largely fall within the IHT estate.

HMRC estimates that approximately 10,500 additional estates per year will become liable for IHT as a result of this change. Those most affected will be individuals who have deliberately preserved pension funds as an inheritance vehicle while drawing income from other sources.

Two important exceptions remain: death-in-service benefits from registered pension schemes continue to fall outside the IHT estate. Spousal and charitable exemptions are also unchanged — assets passing to a spouse or civil partner, or to a registered charity, remain exempt from IHT regardless of these reforms.

What this means for homeowners specifically

For homeowners, property already sits within the estate for IHT purposes. The main residence nil-rate band provides some relief — up to £175,000 per individual where property is left to direct descendants — but the standard nil-rate band of £325,000 has been frozen since 2009 and is not rising. As property values have grown, an increasing number of estates have found themselves in IHT territory even without significant pension or investment wealth.

From April 2027, if pension funds are also added to the estate, the total taxable value for many homeowners could rise substantially. A homeowner with a property worth £600,000 and a pension pot of £300,000 that was previously outside the estate could see their IHT position change significantly under the new rules.

Equity release is one legitimate planning tool in this context. By releasing equity from the property during your lifetime, the outstanding loan reduces the value of the estate at death — since it is secured against the property and repaid on sale. The proceeds could fund living expenses, gifts to family, or other planning strategies. This approach must be discussed with a qualified independent financial adviser and estate planner, as it involves trade-offs that vary considerably between individuals.

Equity release is not appropriate for everyone, and this article does not constitute financial advice. What it does is flag that the IHT landscape has changed materially, and that plans made even two or three years ago may no longer reflect current rules.

What to do next

The starting point is a clear picture of your estate: what you own, what it is worth, and how it is currently structured. For homeowners with property, pensions, and potentially business or agricultural assets, the April 2026 and April 2027 changes each have the potential to increase IHT liability significantly.

Review existing plans with a qualified IFA or estate planner who is familiar with the new rules. If equity release is part of the conversation — whether as an income tool, a way to fund lifetime gifts, or a mechanism to reduce estate value — ensure that advice is provided by a qualified later-life lending specialist operating under FCA-regulated advice standards.

This article is for information only and does not constitute financial, tax, or legal advice. Please seek qualified professional advice before making any decisions about your estate.