Hot Off The Press: Draft Inheritance Tax Legislation

On 21 July 2025, the government published the draft Finance Bill 2025–26, confirming far-reaching reforms to Agricultural Property Relief (“APR”) and Business Property Relief (“BPR”) with effect from 6 April 2026. These changes have now moved beyond consultation and will form part of next year’s Finance Act.

Despite significant protest from certain sectors, including the agricultural community, the government has not watered down the original proposals. The published draft confirms the direction of travel: reliefs previously considered cornerstones of estate planning for landowners, business owners, and investors are now being substantially restricted.

Summary of Confirmed Changes

1. £1 Million Cap on 100% Relief

From 6 April 2026, individuals will be limited to a combined £1 million of 100% relief across APR and BPR. Any value exceeding the cap will still qualify for 50% relief, meaning half the value will become chargeable to inheritance tax.

• The cap is per individual, with no transfer to spouses or civil partners.
• The £1 million allowance refreshes every seven years but will remain fixed in cash terms until 5 April 2030, after which it will rise with CPI.

2. Trust Planning Restrictions

The draft legislation confirms that:

• Trusts created before 30 October 2024 will each benefit from a separate £1 million allowance, which becomes available from the first 10-year anniversary on or after 6 April 2026.
• Trusts created on or after 30 October 2024 by the same settlor must share a single £1 million allowance across all relevant charges (e.g. 10-year anniversary, exit events).
• Relief is based on the gross value of assets before any relief is applied.

These changes introduce clear anti-fragmentation measures aimed at limiting multiple allowances via trust planning.

3. Reduced Relief for AIM Shares

Shares listed on AIM and other lightly regulated markets will no longer qualify for 100% BPR. From April 2026, they will only receive 50% relief, regardless of value or holding period. The reduced relief will also apply to shares listed on certain overseas exchanges that are not recognised stock exchanges under UK tax law.

This may have a material impact on those holding significant AIM portfolios within trading or investment structures.

4. Extension of Instalment Option

The 10-year interest-free instalment payment scheme previously restricted to land and certain businesses will be extended to cover all property eligible for APR & BPR. This may help mitigate liquidity issues on death, particularly for estates with large shareholdings or closely held businesses.

5. Transitional Rules

There is a limited window for action:

• Gifts made before 30 October 2024 will not be subject to the new cap.
• Gifts made between 30 October 2024 and 5 April 2026 will fall under the new rules if the donor dies on or after 6 April 2026 and within seven years of the gift.

This makes timing particularly important for those considering restructuring or gifting plans.

Practical Implications

While much of the political and media narrative has focused on farmers and landed estates, the reality is that these reforms have a much wider reach in practice. The £1 million cap on 100% relief applies across all qualifying assets, not just farmland. This means:

• business owners with trading companies valued over £1 million,
• investors with significant AIM holdings, and
• individuals using BPR-based structures, such as family investment companies

…could all find themselves exposed to inheritance tax liabilities on value previously covered by relief.

With the cap fixed in cash terms until April 2030 and trust planning options narrowed, it’s increasingly unlikely that business or estate assets will escape tax entirely. For clients with complex holdings or family succession plans, the importance of early, joined-up advice cannot be overstated.

Next Steps: Review Your Estate Planning

The publication of the draft legislation marks the final opportunity for proactive planning ahead of the new rules.

At Sedulo Tax Advisory, our in-house wealth management team works in close partnership with our tax specialists to deliver joined-up estate planning advice. We can help:

1. Model the impact of the new rules on your estate
2. Reassess investment portfolios in light of reduced relief for AIM shares
3. Structure trust planning to take advantage of pre-30 October rules
4. Review cash flow and liquidity needs, especially for estates holding illiquid assets such as land or private company shares
5. Integrate financial planning solutions to offset or reduce future liabilities

Get in touch with our expert advisers today for tailored advice and support. We are here to help you every step of the way