Key aspects of the new rules

• In a significant concession announced by the Government on 23rd December 2025, the cap is now due to be set at £2.5m (rather than £1m as originally proposed).
• For estates and trusts holding a mixture of assets qualifying for APR and/or BPR, the £2.5m relief allowance will apply to the combined value of both (rather than each having a distinct relief allowance).
• The value of qualifying assets above the £2.5m relief allowance will be eligible for 50% relief so that, after taking account of any available nil rate band, the excess will effectively suffer a 20% charge on death (being half the death rate) and a 10% charge (being half the lifetime rate) on immediately chargeable lifetime gifts, such as gifts into trust.
• It is envisaged that the £2.5m relief allowance will increase in line with indexation from 6 April 2030.
• Certain property, such as assets owned personally but used in the business owner’s trading business, will continue to qualify for 50% relief, as they do now. A chargeable transfer of such assets will not eat into the £2.5m relief allowance.
• BPR available for certain types of ‘unlisted’ shares including those listed on the Alternative Investment Market (AIM) is being reduced from 100% to 50%. This reduction in relief will also apply to certain qualifying shares listed on foreign exchanges which are not a recognised stock exchange. A chargeable transfer of such assets will not eat into the £2.5m relief allowance.
• In the context of potentially exempt lifetime gifts (PETs) and chargeable lifetime transfers (CLTs) the £2.5m relief allowance will ‘refresh’ every 7 years (much like the nil rate band is effectively ‘restored’ when lifetime gifts that are immediately chargeable or potentially exempt are survived by 7 years).
• The £2.5m relief allowance will be apportioned across different components of qualifying assets within an estate (or which are due to be aggregated with the estate). There is currently some uncertainty about the mechanics of the apportionment provision as it appears in the draft legislation and HMRC has been asked for clarification.
• Significantly, in the context of will and lifetime estate planning and by way of an adjustment to the initial draft legislation:

○ If the £2.5m relief allowance is not used in full on death, there will be scope for transfer of unused allowance to the estate of a surviving spouse or civil partner (similarly to the way in which unused nil rate band and residence nil rate band is transferable between the estates of spouses and civil partners).

○ This concession will allow the transfer of unused £2.5m relief allowance to the estate of a surviving spouse or civil partner even if the first death happened prior to 6th April 2026.

○ Notwithstanding the facility to effectively double up on the £2.5m relief allowance on death of a surviving spouse or civil partner, there may be a case for using and testing the relief on first death (and for structuring estate and will provisions accordingly, with the benefit of specialist advice).

• There will be an instalment option for payment of IHT due on assets qualifying for APR or BPR (regardless of whether the liability relates to value exceeding the 100% relief cap or to assets which only qualified for 50% to begin with). In a concession that is significant from a practical perspective, the instalment option will be interest free.