Background on IHT Relief Changes
From 6 April 2026, the UK government has capped Agricultural Property Relief (APR) and Business Property Relief (BPR) so that combined value eligible for 100% relief is limited to £2.5 million per person (£5 million for couples). Above this threshold, relief drops to 50%, leading to an effective Inheritance Tax rate of 20% on excess value. (gov.uk) Trust holdings and properties listed on AIM are also affected with specific restrictions and reduced BPR/APR relief above value thresholds. (tax.org.uk)
Case Scenario: The Farm Owned by Mr & Mrs Green
| Farmer | Asset | Ownership Structure | Value | Relief Before April 2026 | Relief From April 2026 |
|---|---|---|---|---|---|
| Mr & Mrs Green | Family farm including land, barn, machinery, property | Joint ownership under trusts | £4 million (per person £2 million) | Previously full APR/BPR on all £4 million | Full relief on first £2.5 million each; 50% relief on remaining £1.5 million (much smaller tax saving) |
Without planning, excess value (>£2.5M each) will have only 50% relief, so a portion of assets will face a 20% IHT rate on untaxed value. For example, £1.5M excess leads to £300,000 charge for each. Combined, for Mr & Mrs Green this could result in ~£600,000 liability.
Mitigation & Planning Strategies
- Gifting assets during lifetime, either outright or via trusts, especially before death, to reduce value of relief-eligible estate.
- Transferring ownership or splitting ownership among spouses to utilize the full relief limit per person.
- Using AIM-listed shares: note that shares listed on Alternative Investment Market are limited to 50% relief regardless of value, so be cautious.
- Trust structures may defer reliefs—consider timing and trust types carefully.
- Insurance policies: consider IHT insurance to cover potential tax liability based on current farm value.
Payments, Deadlines & Compliance
- IHT is payable from estate at death; executors must prepare IHT return including details of qualifying property and relief claims.
- Where assets are in trusts or jointly held, include documents showing ownership and relief eligibility.
- Valuations should be up to date and reflect market values as of date of death.
Key Takeaways
- The cap means full relief only for £2.5 million per person GBP of APR/BPR-qualifying asset value; the rest faces 50% relief.
- Planning early is essential—transfers and restructuring must be established well before date of death.
- Particularly relevant for those with sizeable farming business, land holdings, or high-value business assets.
- Legal and tax advice is crucial, especially when dealing with trusts or shares listed on specific markets.
Conclusion: The April 2026 capping of IHT reliefs marks a material shift in how business and farming estates will be taxed upon death. Proactive ownership planning, valuation updates, and structuring ownership across spouses can soften the blow.