IHT changes in 2026 and 2027: what later-life homeowners need to know

Change one: Business and Agricultural Property Relief capped from April 2026

From 6 April 2026, the full 100% relief on Business Property Relief (BPR) and Agricultural Property Relief (APR) is capped at £2.5 million of qualifying assets per person. Any amount above that threshold still receives relief — but only at 50%, rather than the full 100% that applied previously. The effective IHT rate on qualifying assets above £2.5 million is therefore 20% (50% of the standard 40% IHT rate).

The £2.5 million cap is per individual. Where assets pass to a surviving spouse, unused BPR/APR capacity transfers with the estate — meaning couples can potentially shelter up to £5 million of qualifying business or agricultural assets between them at the full 100% rate.

For owners of family businesses, farm assets, or AIM-listed shares held for IHT purposes, this is a material change in the amount that can pass to the next generation free of tax. For later-life homeowners who also hold business interests, it is worth factoring into a broader view of how the overall estate is structured.

Change two: DC pensions join the taxable estate from April 2027

From April 2027, unused defined contribution (DC) pension funds — including Self-Invested Personal Pensions (SIPPs) — will be included in the taxable estate for inheritance tax purposes for the first time. Currently, DC pensions sit outside the estate entirely, which has made them a popular vehicle for sheltering wealth from IHT while remaining accessible to the pension holder during their lifetime.

After April 2027, that changes. The pension fund will form part of the estate and could be subject to 40% IHT on amounts above the nil-rate band.

The SIPP commercial property issue

One scenario that has attracted particular attention is the treatment of commercial property held within a SIPP or SSAS (a small self-administered scheme). Under the new rules, for pension holders who die aged 75 or over, there is a potential double charge:

• 40% IHT on the pension assets as part of the estate
• Up to 45% income tax on amounts paid out to beneficiaries as pension income

In the worst case, these charges can combine to reduce the net benefit to beneficiaries to as little as 33p in every £1 of pension value — a combined effective tax rate of up to 67%. This applies to the residual pension fund, not to assets already withdrawn during the pension holder’s lifetime.

“The interaction between IHT and income tax on inherited pension funds is one of the most significant changes for people who have used their SIPP as a wealth-transfer vehicle.”

What this means for the role of property in estate planning

These two changes do not directly affect property — the residential nil-rate band, standard nil-rate band, and IHT treatment of the family home remain as before. But they change the context in which property sits within an estate.

For many older homeowners, the family home has always been the largest single asset. In households where pensions have also been treated as a tax-efficient way to pass wealth to children, that equation is shifting: pensions become more like other assets for IHT purposes, and the total taxable estate may be larger than previously expected.

That does not automatically make any one course of action right or wrong. But it does make understanding the full picture — property value, pension value, other assets, and applicable reliefs and allowances — more important than it was before either of these changes came into effect.

For homeowners who have not recently reviewed how their property and other assets fit together in an estate context, these changes are a reasonable prompt to do so — with a solicitor, an independent financial planner, or both.