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Inheritance Tax (IHT) is often called Britain’s “most hated tax,” and for many families, 2026 is set to be a milestone year. While the headline rate remains at 40%, several significant changes coming into effect this April could change how you plan for the future.
Here is a straightforward guide to the actual and possible changes to IHT in 2026 and how they might affect you.
The “Stealth” Tax: Frozen Thresholds
The most important thing to know is what is not changing. The government has confirmed that the main IHT thresholds will remain frozen until April 2031.
- The Nil-Rate Band: This stays at £325,000.
- The Residence Nil-Rate Band: This stays at £175,000 (for those leaving a main home to direct descendants).
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Why does this matter?
As property prices and inflation rise, more “ordinary” estates are being pushed over these limits. This is known as “fiscal drag.” For a married couple, the combined tax-free allowance can still reach £1 million, but with the average house price in many parts of England and Wales climbing, that £1 million does not go as far as it used to.
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The big update for farmers and business owners
Perhaps the biggest news for 2026 follows the government’s announcement in late 2025 regarding Agricultural Property Relief (APR) and Business Property Relief (BPR).
Originally, the government proposed a strict £1 million cap on these reliefs. However, following a significant update from 6 April 2026, a new £2.5 million allowance will be introduced.
- How it works: The first £2.5 million of qualifying business or agricultural assets will remain 100% tax-free.
- The “Excess”: Anything above this £2.5 million threshold will receive 50% relief, meaning an effective tax rate of 20%.
- Couples benefit: Crucially, this allowance is transferable between spouses. This means a farming or business couple could potentially pass on up to £5 million in assets before any IHT is due.
Changes to AIM Shares
For those who have invested in the Alternative Investment Market (AIM) specifically to reduce IHT, the rules are tightening. Currently, qualifying AIM shares can be passed on 100% tax-free if held for two years.
From 6 April 2026, this relief will be cut to 50% for all investors. Effectively, your AIM portfolio will be taxed at 20% upon death, regardless of how long you have held the shares.
Looking Ahead: Pensions
While not a change for 2026 itself, it is vital to keep an eye on April 2027. The government intends to bring unused pension funds into the IHT net. Historically, pensions have been a tax-efficient way to pass on wealth, but this “loophole” is closing. In some cases, pension benefits may also remain subject to income tax in the hands of beneficiaries, meaning families could face a combination of IHT and income tax on the same funds. While pension nominations will remain important in determining who receives benefits, they will no longer, of themselves, keep pension funds outside the IHT net.
If you are reviewing your estate in 2026, you must factor these changes into your long-term strategy.
What should you do now?
The changes arriving in April 2026 mean that “off-the-shelf” Wills or older tax plans may no longer be efficient. Whether you are a business owner concerned about the new £2.5 million cap or a homeowner worried about the frozen thresholds, early planning is the best way to protect your legacy.