IHT relief changes – what’s changing, where we are, and what to do

Important changes to IHT relief for business and agricultural property are coming. Business owners and landowners should review their estate planning now. 

It feels like a long time since 30 October 2024 when the government announced their proposed changes to business property relief (“BPR”) and agricultural property relief (“APR”) from inheritance tax (“IHT”). A lot has happened since then. Farmer protests have been perhaps the most visible, but family business groups and other sector organisations have also been lobbying as well as discussing the changes and how they may impact them.

At the end of 2025 there were two key announcements from the government providing important concessions. The first was to allow any unused relief allowance to be transferred on death to a person’s spouse or civil partner. The second was to increase the value on which 100% relief can be claimed from the originally proposed £1million to £2.5million.

In this update, we consider these concessions and summarise where we are now and what steps business owners, landowner, trustees, and their advisors should be considering in the coming months.  

We assume for the purpose of this article that the allowances are £2.5million. This is the amount recently announced by the government. However, it must be remembered that the draft legislation includes a mechanism whereby the Treasury is able to increase the allowance by an amount equal to CPI from year to year. For the new relief allowances, this process is opt-in, rather than the similar one for nil rate bands for IHT, which is opt-out. Successive governments have opted out of any increases of the nil rate bands for the previous 16 or so years and so it is foreseeable the same fiscal drag may be used in relation to the relief allowances.

What is changing?

At the moment and up to 5 April 2026, provided the relevant conditions are met, BPR and APR can be claimed on unlimited value at a maximum rate of 100%. This relief can be claimed on someone’s death when they owned relievable property. It can also be claimed by trustees of certain trusts owning relievable property.

Under the proposals to be introduced from 6 April 2026, the availability of full relief will be capped. Any value in excess of the allowance will only get relief of 50%.

What is the allowance?

The key figure is now £2.5million. This has increased from the original £1million in the initial government proposals.

However, depending on the circumstances, that allowance might be different. It is also important to remember, that there are two allowances. One allowance is relevant to individuals and gifts they make or IHT due on their death. In the legislation this is called the “100% relief allowance”.

The other allowance is relevant to certain trustees for any ongoing charges within that trust once relievable assets have been transferred to it. This is referred to as the “100% trust relief allowance”.

For individuals:

An individual’s 100% relief allowance can be used up by chargeable lifetime gifts such as gifts to trust or failed potentially transfers (such as making a gift outright to someone but then dying within 7 years). If looking back from the point of a person’s death they have made gifts of relievable property in the previous 7 years (or 14 years in some cases), then those earlier gifts will use up their 100% relief allowance. Any remaining allowance can be used in relation to relievable property they may still own at the time of their death. So for individuals, the allowance in effect refreshes on a 7 year rolling basis.  

An individual can inherit any unused 100% relief allowance from their civil partner or spouse. If the person that has died did not use their allowance in the 7 (or 14) years before their death and then did not use any remainder on their death (for example if their estate passes spouse exempt to the survivor) then, their spouse can inherit that remaining allowance. If an individual is widowed and remarries multiple times, any remaining allowances of those spouses can be added together. The maximum any one individual could inherit is capped at £2.5million meaning a maximum combined 100% relief allowance of £5million, being their own allowance plus an inherited amount. The result of this provision is similar to the way in which nil rate bands can be inherited.  

The rules work so that if someone had a spouse or civil partner that died or dies before 6 April 2026, it is assumed that the deceased spouse had a full 100% relief allowance remaining that can be inherited by the surviving spouse. That is regardless of whether they actually owned any relievable property or if any BPR or APR was claimed on their death.

Example:

Alex and Harrie are married. Alex dies in August 2026 owning £10million of relievable property. Alex leaves £1million of that relievable property direct to their son and the remainder to Harrie spouse exempt. That means £1million of Alex’s 100% relief allowance has been used. On Harrie’s death, and assuming no lifetime gifts, Harrie will have their own £2.5million allowance plus Alex’s unused £1.5million for a total of £4million that could get relief of 100%. Anything above that £4million limit will only get relief of 50%.   

(The mechanism for this works on the basis of a percentage of the relief allowance at the time of the second death. So if the relief allowance is adjusted in the future, the total relief allowance available on the death of a second spouse would be higher.)

For Trustees:

For trustees, how the new rules work depends on the type of trust, when the trust was created, and what assets the trustees hold.

For a qualifying life interest trust, where the assets of the trust are treated for IHT purposes as owned by the beneficiary, the life tenant’s 100% relief allowance will on their death be apportioned between their personal assets and those held on trust for them.

For relevant property trusts that have ongoing IHT charges every 10 years and exit charges between those anniversaries (for example, most discretionary trusts created by UK persons), the trustees will have their own 100% trust relief allowance. That allowance can be used for those exit and anniversary charges. It is not relevant for any entry charge to the trust; any entry charge is by reference to the settlor’s 100% relief allowance – see above.

For trusts that existed on 30 October 2024 and already owned any relievable property at that point, the trust will have a full 100% trust relief allowance of £2.5million. These are defined as “qualifying pre-commencement settlements” in the language of the legislation.

For trusts that did not hold any relievable property on 30 October 2024, or were created on or after 30 October 2024, the trust relief allowance will be determined by matching the value of relievable property given to the trust by a settlor, up to a maximum of £2.5million. So if someone transfers £500,000 of relievable property to a trust, that trust will have a 100% trust relief allowance of £500,000. That will leave the person with £2million of 100% trust relief allowance that can be applied to trusts to which that person makes future chargeable transfers of relievable property. That might be the same trust or it might be other trusts. Any remaining 100% trust relief allowance will be available for any trust of relievable property created on that person’s death.

The trust relief allowance “sticks” in this way to any trusts to which someone transfers relievable property. Once the full trust relief allowance has been “stuck” to trusts that person has created, any future trusts they create will have no 100% trust relief allowance and the assets in those trusts will only get relief of 50%.  A person only has one £2.5million trust relief allowance in their lifetime:  it does not refresh unlike the individual relief allowance discussed above.

Once stuck to a trust, the trust allowance cannot be moved. It cannot be transferred to another trust and it does not revert to the settlor if that trust comes to an end. Unlike the personal relief allowance, any unused trust relief allowance cannot be transferred to a surviving spouse. It is relevant only to trusts created by that individual.

If a trust has an allowance, that can be used in relation to any exit and anniversary charges. The trust relief allowance applies in chronological order over a 10 year period to events in the trust. Immediately after a 10 year anniversary, that trust’s relief allowance will refresh (back to its original level, not necessarily the maximum of £2.5million) ready for the next 10 years.

Example – lifetime gifts and the two allowances

Bobby transfers £1million of relievable shares onto discretionary trust on 14 February 2027. He has made no other gifts to trust on or after 30 October 2024. This new trust will have £1million of 100% trust relief allowance as that is the value of relievable property transferred. That trust relief allowance is relevant to 10 year charges and exit charges of that trust. The trust relief allowance that could “stick” to any future trusts of relievable property Bobby creates is now £1.5million (£2.5million less this transfer of £1million). Bobby’s remaining trust relief allowance will not refresh for future trusts. The £2.5million is a lifetime maximum used up in chronological order.

By making the gift, Bobby also uses up £1million of his personal 100% relief allowance which is also £2.5million leaving him with £1.5million. That remaining balance will be set to any future entry charges for gifts onto trust or used up against IHT on his death. If Bobby survives 7 years – i.e. until after 14 February 2034 – then his personal 100% relief allowance will refresh back up to £2.5million.

If instead Bobby dies in March 2029 (so he doesn’t survive 7 years from the gift) and say at that point he owns £2million of other relievable property, then:

1. Of his personal 100% relief allowance, there is £1.5million left (total £2.5million less his gift within 7 years of death of £1million). So the first £1.5million of his £2million of relievable value will get 100% relief. The remainder – £500,000 – will only get relief of 50% on his death.
2. If that £2million of relievable property is held on a relevant property trust established in Bobby’s Will, in order to understand what 100% trust relief allowance that Will trust will have, you look back at the trusts Bobby has created during his lifetime to which his 100% trust relief allowance has “stuck”. Here Bobby has created one trust with relievable property that took £1million of trust relief allowance. So on his death £1.5million is left and can be set to the Will trust. That trust relief allowance is relevant for any ongoing charges of that trust. So if the trust continued with no exit charges until its first 10 year anniversary in March 2039, the first £1.5million of relievable property at that point would get 100% relief. Anything in excess would only get 50% relief.

The example shows that there are two concurrent allowances to consider.

One personal to each individual, that behaves like a nil rate band, refreshing on a rolling 7 year basis after gifts (including gifts to trust) and then any remainder then being used on death. That is a person’s 100% relief allowance.  

The other is a 100% trust relief allowance. Each person has a maximum £2.5million trust relief allowance that will “stick” in chronological order to trusts of relievable property that they create during their lifetime, with any balance available for Will trusts created on death.

When do the new allowances apply?

For trustees, the answer depends on the type of trust and when it was created. For more information on this, see our flowchart via our trustee guide page on the main page of our IHT reform Hub area of our website.

For individuals, the new rules will apply to deaths from 6 April 2026.

In relation to lifetime gifts, if someone made a gift pre-30 October 2024, then the new rules will not apply regardless of when they die even if that is within 7 years of the gift.

If someone makes a gift on or after 30 October 2024 but then dies within 7 years on or after 6 April 2026, the new rules will apply. If they die before 6 April 2026, then the new rules do not apply.

For lifetime gifts into trust, this means there is a window until 6 April 2026:

1. Before 6 April 2026, an individual’s personal relief allowance will not apply to gifts to trust. So transfers of relievable property of unlimited value can be transferred into trust before 6 April 2026. If the person dies within 7 years and 6 April 2026 onwards, the new rules and that person’s personal relief allowance will apply to determine any additional IHT then due on death (referred to as clawback); however
2. That trust will have a trust relief allowance determined by the value added to it. Though the trust relief allowance does not become ‘live’ until 6 April 2026, for gifts to trust on or after 30 October 2024 it is still relevant to future IHT charges within the trust.

What do I do?

For most individuals owning assets on which relief might be available, the key points are:

1. Estimate the IHT. Will you be impacted by the allowance? Is any IHT affordable or proportionate to wider considerations?
2. Consider existing estate planning options – lifetime gifts and trusts.
3. Review any existing trusts, how they will be impacted, and is it affordable and proportionate to the other benefits trusts can provide?
4. Update Wills – while the transferability of unused personal relief allowances between spouses and civil partners is a welcome concession, it may still be appropriate to capture any remaining allowances (both personal relief allowance and trust relief allowance) on the first death by establishing trusts of relievable property.
5. If any gifts are made, review asset protection measures such as prenuptial and postnuptial agreements, shareholders’ agreements, company articles, partnership agreements, co-ownership agreements, etc.

For specific guides see our main hub. This includes guides for:

1. Landowners
2. Entrepreneurs
3. Trustees
4. Professional advisors

Burges Salmon’s private wealth team can assist with tax advice, estate planning, family advice, corporate advice, and property advice. We are able to advise you on these issues as a whole or work alongside your existing advisors to guide you through what the options might be for your business or land in light of the upcoming changes.