Inheritance tax reforms trigger a “seismic shift” in planning conversations

What changed from 6 April 2026

For decades, Business Property Relief (BPR) and Agricultural Property Relief (APR) allowed eligible assets — farming land, business interests, AIM shares — to be passed on free of inheritance tax. The 100% relief had no upper limit. From 6 April 2026, that changed: the combined threshold for 100% relief under APR and BPR is now capped at £2.5 million per person. Value above that threshold attracts 50% relief — meaning the effective inheritance tax rate on the excess is 20%, not zero.

For many estates where farming land or business assets have accumulated significant value over decades, this is a material change in the tax position they were planning around.

The coming pension change adds further pressure

A second change is arriving in April 2027: unused pension funds and death benefits will be included in the value of a person’s estate for IHT purposes for the first time. Previously, pension funds passed outside the estate. From April 2027, any undrawn pension fund remaining at death will be counted as part of the estate and potentially taxed accordingly, depending on the total estate value.

The combination of the BPR/APR cap and the pension change is creating a materially different inheritance tax landscape than the one many people planned around. Industry commentators have described client reactions as ranging from surprise to anxiety — some making unnecessary spending cuts, others delaying retirement decisions, while they recalibrate their expectations of what their estate might look like.

The nil-rate band freeze and rising house prices

Separately, the nil-rate band (currently £325,000) and the residence nil-rate band (currently £175,000) are frozen until April 2031. As house prices rise, more estates cross the IHT threshold without any change to the individual’s circumstances. An estate that was comfortably below IHT in 2020 may now be above it purely because of property price growth.

For homeowners 55+ who have accumulated significant property wealth over long periods, this creeping effect is real and ongoing, independent of any specific tax reform.

How equity release relates to estate value

One factual aspect of lifetime mortgages — which is relevant context for homeowners thinking about their estate — is that a lifetime mortgage reduces the net value of the estate. When equity is released via a lifetime mortgage, the outstanding loan balance is a liability sitting against the property. At the point of death or sale, the loan is repaid from the property proceeds before any inheritance is distributed. The net value of the property asset in the estate is therefore lower than the gross property value.

Additionally, if released funds are gifted during the homeowner’s lifetime, those gifts may fall outside the estate for IHT purposes if the donor survives seven years from the date of the gift, subject to the usual rules around gifts and potentially exempt transfers.

This is not the same as saying equity release is an estate planning tool — it has other purposes and other implications, and any decision involving estate planning should involve a solicitor and/or qualified financial planner with relevant expertise. But it is factually accurate context for homeowners who are trying to understand the complete picture of how their assets interact with IHT.

Further reading