When a UK chancellor announces changes to tax relief in a Budget speech, it does not usually generate big headlines. Nor does it create a lasting impression in the minds of voters.
But in her inaugural Autumn Budget last October, chancellor Rachel Reeves announced controversial changes to the UK’s inheritance tax regime — most notably to reliefs and exemptions — that have had an enduring impact, both in the media and in the public consciousness.
The principal rationale for changes to IHT reliefs is, of course, to raise funds for the Treasury. IHT receipts in the UK hit a record high of £7.5bn in 2023-24, an increase of £400mn compared with the previous year’s record of £7.1bn.
By closing perceived IHT loopholes, that figure is forecast to grow substantially during this parliament. But there is some potentially good news for those who will be most affected: writing a life insurance policy in trust can help to mitigate the impact on their intended beneficiaries.
Budget changes to IHT reliefs affect UK resident and domiciled individuals, as well as non-domiciled individuals. The biggest single change concerns relief on assets.
Agricultural and business property reliefs capped
Agricultural property relief and business property relief were introduced in 1984 and 1976, respectively, to ensure the survival of family farms and other businesses after the owner’s death.
In curtailing both reliefs, the government is expected to publish a technical consultation shortly, with the reforms planned to take effect from April 2026. These are primarily targeted at three distinct groups: farmers, family businesses and non-doms, who live in the UK but are legally domiciled elsewhere.
Currently, agricultural and business property reliefs are available at 100 per cent or 50 per cent (based on eligibility criteria), with no cap on the total amount of relief. From April 2026, IHT relief for business and agricultural assets will be capped at £1mn: a combined cap for both agricultural and business property reliefs will apply.
A new reduced rate of 20 per cent will be charged above the £1mn figure, rather than the standard IHT rate of 40 per cent. The tax will be payable in instalments over 10 years, interest-free. The current 50 per cent rate categories will remain unchanged.
Similarly, the current IHT thresholds will remain in place until 2030 and exemptions for transfers between spouses and civil partners will continue to apply.
Agricultural property relief supporters suggest the argument for the current relief is as valid now as when it was first introduced: to keep the country producing food
In addition to the £1mn figure, nil-rate bands are also applied to IHT. A nil-rate band is the amount of an estate that can be passed on to beneficiaries free of IHT.