Introduction to the IHT rule changes
Business owners are facing a cap on relief from inheritance tax (IHT), impacting the extent to which a trading business can be passed on free of tax and creating a succession planning headache for many.
The Office for Budget Responsibility has estimated that up to 1,100 estates across the UK will pay more inheritance tax in 2026-27 as a result of the cap on relief and related measures. This revised forecast takes into account certain concessions made since the proposals were first announced in the October 2024 budget.
However, we know from our conversations with clients and other professional advisers that the impending rule change continues to be a real and pressing concern for many farm and business owners up and down the country.
Here we examine key aspects of the new rules and what business owners need to be thinking about now.
When will the rules change?
- The new rules are set to take effect from 6 April 2026.
- Transitional arrangements will apply to gifts made in the period between 30 October 2024 and 6 April 2026, and to certain ‘pre-commencement’ trusts in existence prior to 30 October 2024.
- Lifetime gifts made before 30 October 2024 will not be affected, or brought into account, in relation to the new cap.
Who will be affected?
- Individuals whose death occurs on or after 6 April 2026 and whose estate for inheritance tax purposes includes assets eligible for 100% relief (qualifying assets).
- Settlors and trustees of trusts holding qualifying assets.