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March 18, 2026
Estate planning remains one of the most critical yet often overlooked aspects of protecting family wealth, business continuity, and long-term legacy. With significant changes to the UK’s Inheritance Tax regime, beginning with the Long-Term Residence framework in April 2025 and extending into revised rules effective 6 April 2026, individuals, families, and business owners with UK exposure will face a materially different tax landscape. These changes matter because they directly impact how wealth is transferred and taxed. This makes it essential to reassess existing Wills and estate structures to ensure continued efficiency and protection.
In particular, the government’s proposed reforms to Agricultural Property Relief (APR) and Business Property Relief (BPR) introduce a cap on the existing 100% relief. A combined threshold of £2.5 million will continue to qualify for full relief, while any value above this threshold will be eligible for only 50% relief, resulting in an effective tax rate of up to 20%.
While these changes may not affect all individuals, families with assets exceeding this threshold could face a material increase in tax exposure, with potential implications for the continuity of their business or farm.
What Is Inheritance Tax?
Inheritance Tax (IHT) is a tax that could be payable on an individual’s estate when they pass away. From April 2025, new rules have been introduced in the UK, which affect the old “domicile” rule and introduce a new Long-Term Residence (LTR) test.
According to the new rules, if an individual has been a UK tax resident for at least 10 out of the last 20 years, they could be considered a UK Long-Term Resident. This means that their worldwide assets, not just assets in the UK, could be liable for UK Inheritance Tax.
At present, every individual is entitled to a tax-free allowance of £325,000, which is also known as the Nil Rate Band.
If the value of the estate is above the tax-free band, the amount above the tax-free band is taxed at 40%. However, gifts to spouses and civil partners are exempt from Inheritance Tax, meaning that no tax is payable.
Key Insights – What the 2026 Reforms Really Mean
Prior to the Autumn Budget 2024, APR and BPR offered unlimited 100% relief on qualifying assets, enabling family farms and businesses to be inherited tax-free. However, proposed changes announced in the Autumn Budget 2024 and further confirmed in the July 2025 legislation will mean that this unlimited relief will no longer be available, from 6 April 2026.
From April 6, 2026, the existing unlimited 100% Inheritance Tax relief on agricultural and business property will no longer be available. The proposed changes introduced by the Autumn Budget 2024 and confirmed in the July 2025 legislation include a cap on the amount that will be eligible for 100% relief.
Under the new reform,
The initial amount of £2.5 million in the qualifying agricultural or business assets will continue to receive 100% relief from Inheritance Tax, and as such, no tax will be payable on this amount.
Any amount above the initial £2.5 million will receive only 50% relief.
As such, the amount in excess may be liable to pay tax at a rate of up to 20%, as opposed to the standard 40% rate.
Any Inheritance Tax payable on the assets can be paid in equal installments over a period of ten years, and this will attract no interest.
There are more favourable provisions for married couples and civil partners:
Any unused part of the £2.5 million allowance can be transferred to the surviving spouse or civil partner if the first spouse does not fully use the allowance.
As a result, a couple could potentially transfer up to £5 million of qualifying agricultural or business assets with full (100%) relief.
All this is in addition to the standard Nil Rate Band.
The spousal exemption is also unaffected, and assets transferred between spouses or civil partners are exempt from Inheritance Tax.
To sum it up, while the relief is no longer unlimited, significant protection is still available particularly for couples, but larger estates will now need more careful planning.
Illustrative Example
Let us take a simple example of a farm owned by a married couple.
On the first death, assets passing to the surviving spouse are fully exempt from IHT. Unused allowances, including the Nil Rate Band and APR/BPR thresholds, are carried forward.
On the second death, the joint estate will be eligible for relief as follows:
A total Nil Rate Band of £650,000 (£325,000 each), and
Up to £5 million of agricultural or business property qualifying for 100% relief (£2.5 million each).
This allows up to £5.65 million to pass to the next generation without inheritance tax. Any value above this threshold becomes taxable under the revised rules.
What assets qualify for the relief?
Key conditions:
The farm must be a working farm in the UK. For business relief, the asset must generally have been owned for at least two years before death.
Why Is the Government Reforming These Reliefs?
The government has explained that these reliefs are necessary in order to ensure that the Inheritance Tax system is fair. It has been estimated that a small number of very large estates have been claiming a large proportion of the total Agricultural and Business Property Relief available.
The government is introducing a cap in order to target these reliefs more effectively. This means that the government will be able to ensure that family farms and businesses are protected, but that the amount of tax-free transfers in very large estates is reduced. At the same time, the government will be able to raise additional revenue to fund public services.
This relief is part of a wider policy shift. This is because the government is seeking to ensure that there is a balance between wealth preservation and fiscal sustainability. While it is clear that the government is seeking to protect businesses, large and asset-rich families will now have to plan much more carefully. The days of unlimited relief are numbered.
This is not simply a tax reform, but a succession planning wake-up call for family-owned farms and businesses.
What Should You Be Doing Now?
Examine your Will. Many Wills were based on the premise of unlimited relief. This will no longer be the case. If your Will structure is not compatible with the new £2.5 million limit, then the second death tax treatment could be significantly different from what you originally intended.
Review of asset ownership. If agricultural land or business assets are owned personally but used in the business, then this structure may need to be reviewed. Ownership and use must be consistent if maximum relief is to be obtained.
Families should also examine lifetime gifting arrangements. In some instances, staged gifting over lifetime could give greater certainty and minimize risk in the future, especially where asset values are likely to increase.
Ensure that your asset values are up to date – without this information, it is impossible to determine if your estate exceeds the new limits. Planning without asset values is merely guesswork.
How Water & Shark Can Assist
Inheritance tax changes demand much more than a standard Will review; they call out for strategic estate planning.
At Water & Shark, we specialise in Estate planning and structuring of Wills, Asset and legacy protection, advanced family wealth strategizing ,Cross-border estate and succession planning. We work in close coordination with HNWIs, families, and business owners in bringing about tailored and tax-efficient structures that offer protection to assets, maintain family control, and conform to the dynamic legislative environment.
Key takeaways:
Inheritance Tax UK 2026 introduces a £2.5 million cap on APR and BPR
Assets above the threshold may face an effective 20% tax liability
Married couples can optimise relief up to £5 million plus NRB
The Long-Term Residence regime extends IHT to global assets
Proactive planning is essential to preserve continuity and manage risk
FAQs - Frequently Asked Questions
1. What is changing in Inheritance Tax from April 2026?
From 6 April 2026, full APR and BPR relief will be capped at £2.5 million, with any excess qualifying for only 50% relief.
2. Will these changes affect everyone?
No, they primarily impact individuals with high-value agricultural or business assets exceeding the new threshold.
3. Does the Long-Term Residence (LTR) rule apply to global assets?
Yes, individuals meeting the LTR criteria may be subject to IHT on their worldwide assets.
4. Can married couples still benefit from full relief?
Yes, allowances can be combined, enabling up to £5 million of qualifying assets to receive full relief.
5. Should I review my estate planning now?
Yes, reviewing your Will, asset ownership, and succession strategy is essential to manage exposure under the new rules.
Author’s Name
Oshin Viegas
(Tax and Regulatory Associate at Water & Shark)
Disclaimer
The views and opinions expressed in this article are solely those of the author. They do not necessarily reflect the official position, policy or perspective of Water & Shark.
