Farmers and business owners are being urged to check their wills after the government released more details of new rules that will see them liable for inheritance tax from next year.
Draft legislation has now confirmed that from April 2026, the proposed 100% inheritance tax (IHT) relief available for the first £1 million of qualifying business or agricultural assets will not be transferable to either a spouse or children.
Elsa Littlewood, a tax partner at accountants BDO said: “Many families were hoping that the draft legislation would allow for the £1 million allowance to be transferable, bringing this into line with the rules on the inheritance tax nil-rate band and residence nil-rate band.
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“The draft legislation confirms that this hasn’t happened. Unfortunately, this will add further complication to an already complex inheritance tax regime and may penalise the unwary.”
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In a separate article we look at ways to avoid inheritance tax.
What is changing with inheritance tax?
From April 2026, changes to the inheritance tax regime will mean that the first £1 million of combined agricultural and business property will continue to receive 100% relief from inheritance tax.
But relief of just 50% will apply on assets over £1 million – meaning a 20% inheritance tax rate (half the standard rate) will apply above the threshold.
Each person will have the £1 million allowance. The current spousal exemption remains unchanged, so people can pass qualifying assets to a UK, long-term resident spouse free of inheritance tax during lifetime or on death.
However, some were hoping that the draft legislation would align with the current rules for the inheritance tax nil rate band (NRB) and residence nil rate band (RNRB).
This is where any allowance that is unused when someone dies can go to their spouse or civil partner’s estate when they die. But this hasn’t happened.
The consequence is that, while a business owner leaving their qualifying assets to a surviving spouse would not create an inheritance tax charge because of the spousal transfer rules, the spouse leaving assets to their children would only benefit from a £1 million allowance rather than a £2 million allowance.
MoneyWeek spoke to one business owner’s daughter who said the inheritance tax changes to their family business have left her in sheer terror.
Separately, from April 2027, pensions will also be included in inheritance tax calculations.
How to avoid inheritance tax
Many business owners and farmers had already taken advice on passing their business or farming assets on to the next generation before the rule changes. Whereas previously this was a relatively simple process from a tax perspective, that is no longer the case.
Littlewood said some of those affected by the new inheritance tax rules have started to put in place new measures to avoid inheritance tax or reduce their IHT bill.
“Some business owners have opted to make a lifetime transfer of business assets to a spouse free of IHT. This can help ensure that each spouse holds £1 million of qualifying assets once the required two-year ownership period is established,” she said.
“Others have chosen to set up a trust for the surviving spouse with a life interest in the business assets only, to give certainty of the ultimate beneficial recipients of the assets. However, families need to check that this is a tax-efficient option.”
Most importantly, people need to check their will to make sure that it’s up to date and take account of these imminent changes, she said.
The slight silver lining in today’s update is that the £1 million allowance will be uprated in line with inflation from April 2030 onwards.
