On 21st July 2025, the government released a number of documents with further information relating to the announcements made last October regarding changes to Inheritance Tax (IHT). Draft legislation has now been published relating to both the changes to Agricultural Property Relief (APR) and Business Property Relief (BPR), which are due to come into effect on 6th April 2026, as well as the proposals to bring pensions within the scope of IHT due to come into effect in April 2027.
In addition to the draft legislation, HMRC also published their responses to the consultations issued on these changes earlier this year.
APR and BPR changes
There have been no major changes to the proposals originally issued and these are therefore as outlined in our previous articles here.
A change that has been introduced is a clause making provision for the £1million allowance to be increased in line with indexation from 6th April 2030.
There is also confirmation that the allowance will refresh every 7 years (as is the case for nil rate bands), and there is no intention to make the allowance transferable between spouses (unlike for nil rate bands).
With regard to the trust consultation response, this has provided confirmation on how the new allowance will operate for both existing trusts and any new trusts established. In summary:
- Trusts in existence at 30th October 2024 holding property qualifying for APR/BPR will have an automatic £1million allowance
- Existing trusts will have relief on their first ten-year anniversary following 6th April 2026, such that any property previously qualifying for relief at 100% will be treated as having been acquired by the trust at 6th April 2026 (reducing the IHT arising on the anniversary)
- Usually, property leaving a trust will need to have been held by the trustees for at least 2 years (or 7 years for let farmland) to qualify for APR or BPR. There will be temporary relaxation of this condition for property which entered a trust post 30th October 2024 but leaves the trust prior to April 2026 so APR/BPR will still be available so long as all other conditions are met.
- There will be changes to how exit charges from trusts are calculated following their first ten-year anniversary.
- The £1million allowance will apply to exits from trusts in a chronological order and any amounts used on exits will be deducted from the allowance available at the next ten-year anniversary
- The government confirmed that APR and BPR will not be extended to assets held within pension schemes
Pension Changes
The main change to pensions announced from the original proposals is that notifying and paying the inheritance tax arising on pension funds will be the responsibility of the personal representatives of the deceased’s Estate, rather than the pension scheme administrators.
An initial process has been set out in the consultation response as to how this will work for personal representatives, but the government has accepted that this will not capture every scenario and has committed to working with stakeholders on feedback to refine the process prior to April 2027.
The consultation response has also confirmed that death in service benefits will not be brought within the scope of IHT and any that are currently caught will be taken out from April 2027.
Summary
The draft legislation published is open for technical consultation until 15th September 2025. We will be contributing to responses made by the professional bodies we are members of.
In the meantime, it will be important for individuals affected by these changes to begin planning, if they have not already done so, for the impact of these changes. Restructuring involving various professionals can often be needed, and trusts are particularly time sensitive, so it is important to act fast.
For assistance in preparing for these changes, please get in touch with a member of our team today.
