How does the £2.5 million BPR/APR cap work?

The £2.5 million cap applies to the combined value of qualifying BPR and APR assets. Below £2.5 million, 100% relief applies. Above £2.5 million, relief is reduced to 50%, meaning an effective IHT rate of 20% on the excess. The £2.5 million cap applies to the combined value of all qualifying business property and agricultural property in the estate. The cap is per individual, not per asset or per business. The operation of the cap is as follows: (1) The first £2.5 million of combined qualifying BPR/APR assets receives 100% relief (no IHT). (2) Qualifying assets above £2.5 million receive 50% relief (the remaining 50% is subject to IHT at 40%, giving an effective rate of 20% on the excess). (3) The cap does not affect the standard nil-rate band or residence nil-rate band, which are still available. (4) The cap applies per individual, so a married couple could potentially have a combined cap of £5 million if assets are appropriately structured. Relevant legislation: Finance Bill 2025-26 (BPR/APR cap provisions); IHTA 1984 Sections 104-113 and 115-117 (as amended). Example: An estate has qualifying BPR assets of £3.5 million and no other reliefs. Under the April 2026 rules (now in effect): £2.5 million receives 100% relief (no IHT). £1 million receives 50% relief (effective 20% IHT = £200,000). Total IHT on the business assets = £200,000. Under the current rules, the entire £3.5 million would receive 100% relief (no IHT). Common mistake: Assuming the £2.5 million cap is per business or per asset. It is per individual, covering all qualifying BPR and APR assets combined.

Will my pension be subject to IHT from April 2026?

Yes. From 6 April 2026, unused pension funds and pension death benefits will be included in the estate for IHT purposes. Previously, pensions could be passed on free of IHT. The October 2024 Budget announced that from 6 April 2026, unused pension funds and pension death benefits will become subject to IHT. Previously, defined contribution pension funds could be passed on free of IHT, making pensions a valuable estate planning tool. Under the new rules, the pension fund will be treated as part of the estate for IHT purposes. This means that pension funds will be added to the rest of the estate and taxed at 40% (after reliefs and allowances). The change affects both pre-75 and post-75 death benefits. The practical implications are significant: a £500,000 pension pot would generate £200,000 of IHT (at 40%), and the pension fund may also be subject to income tax on withdrawal. Specialist advice is essential to review pension arrangements before April 2026. Relevant legislation: Finance Act 2024 (pension IHT changes); Finance Bill 2025-26 (implementation provisions). Example: An individual has a pension pot of £800,000 and other assets of £400,000. Under current rules, the pension is IHT-free, and IHT on the other assets is £30,000 (40% of £400,000 minus £325,000 NRB). Under the April 2026 rules, the pension is included in the estate. Total estate = £1.2 million. IHT = 40% of (£1.2 million - £325,000 NRB) = £350,000. The IHT bill increases from £30,000 to £350,000. Common mistake: Assuming the pension changes only affect very large pension pots. Even a £300,000 pension would generate £120,000 of additional IHT, potentially pushing the estate into IHT where it was previously exempt.

What should I do before April 2026 to prepare for the IHT changes?

Review your estate plan now. Key actions include: restructuring business assets, reviewing pension arrangements, making lifetime gifts, updating wills and trust structures, and seeking specialist advice. Early action gives the best results. With the April 2026 IHT changes approaching, there is a window of opportunity to review and restructure estate plans. Key actions to consider: (1) Review BPR/APR assets — if qualifying assets exceed £1 million, consider restructuring to maximise relief below the cap (e.g., splitting assets between spouses, using lifetime gifts). (2) Review pension arrangements — consider whether to draw down pension funds, make lifetime gifts from pension income, or restructure pension arrangements. (3) Make lifetime gifts — gifts made more than 7 years before death are free from IHT. The earlier gifts are made, the better the protection. (4) Update wills — ensure the will takes account of the new rules, particularly the BPR/APR cap and pension IHT treatment. (5) Consider trust structures — trusts may help manage the impact of the changes, particularly for business assets. (6) Seek specialist advice — the changes are complex, and the right strategy depends on individual circumstances. Early action is recommended, as some strategies require time to implement. Relevant legislation: Various IHT provisions (IHTA 1984, Finance Acts). Example: A business owner with £2.5 million in qualifying shares reviews their position in 2025. They gift £500,000 of shares to their children (a potentially exempt transfer). If they survive 7 years, the gifted shares are outside the estate. The remaining £2 million in shares is split between spouses (£1 million each), keeping each well below the £2.5 million BPR cap. This structure minimises the impact of the April 2026 changes. Common mistake: Waiting until the last minute to plan. Some strategies (e.g., lifetime gifting) require 7 years to be fully effective, so early action gives the best results.

How will the April 2026 changes affect AIM investors?

AIM shares that qualify for BPR will be subject to the £2.5 million cap from April 2026. AIM portfolios above £2.5 million will receive only 50% relief on the excess, increasing IHT exposure for investors with large AIM portfolios. AIM shares that qualify for BPR will be subject to the £2.5 million cap from 6 April 2026. For AIM investors, this means: (1) AIM portfolios below £2.5 million will continue to receive 100% BPR (no IHT). (2) AIM portfolios above £2.5 million will have 100% relief on the first £2.5 million and 50% relief on the excess (effective 20% IHT on the excess). (3) The cap applies to the combined value of all BPR and APR qualifying assets, so if the investor also has qualifying business or agricultural property, the cap applies to the total. AIM investors with portfolios above £2.5 million should review their position before April 2026. Strategies may include: splitting the portfolio between spouses, making lifetime gifts of AIM shares, or restructuring the portfolio. Relevant legislation: Finance Bill 2025-26 (BPR/APR cap); IHTA 1984 Section 105 (AIM shares as unlisted shares). Example: An investor has an AIM portfolio of £1.8 million. Before April 2026, 100% BPR applied to the entire portfolio (no IHT). Under the April 2026 rules (now in effect): £2.5 million at 100% relief (no IHT), £1.3 million at 50% relief (effective 20% IHT = £260,000). The investor could gift £1.3 million of AIM shares to their spouse, bringing each portfolio to £1.9 million (below the £2.5 million cap). Common mistake: Assuming that AIM portfolios of any size continue to qualify for full BPR after April 2026. The £2.5 million cap significantly changes the IHT treatment of large AIM portfolios.

IHT Advisory › Changes

April 2026 Inheritance Tax Changes

From 6 April 2026, significant changes to BPR, APR, and pension IHT treatment will increase tax bills for many estates. Understand the changes and how to plan before the deadline.

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The October 2024 Budget announced the most significant changes to inheritance tax in over a decade, that took effect from 6 April 2026. The changes affect Business Property Relief, Agricultural Property Relief, and the treatment of pensions for IHT purposes. For business owners, farmers, and individuals with substantial pensions, these changes could significantly increase IHT bills. Understanding the changes and taking action is essential.

The BPR and APR £2.5 Million Cap

From 6 April 2026, 100% BPR and APR are capped at £2.5 million combined. For qualifying assets above £2.5 million, relief is reduced from 100% to 50%, meaning an effective IHT rate of 20% on the excess. This is the most significant change to BPR and APR since their introduction and will affect business owners and farmers with qualifying assets above £1 million.

Pensions and IHT

From 6 April 2026, unused pension funds and pension death benefits will become subject to inheritance tax. Previously, pensions could be passed on free of IHT, making them a valuable estate planning tool. The removal of this exemption means that pension funds will be included in the estate for IHT purposes, potentially increasing IHT bills significantly for individuals with large pension pots.

Transitional Provisions

The government has indicated that there may be transitional provisions for assets held before 30 October 2024 (the date of the Budget announcement). However, the detail is still being confirmed. It is likely that assets acquired before 30 October 2024 will be subject to the old rules (100% BPR/APR) up to a certain date, with the new rules applying thereafter. Specialist advice is essential to understand how the transitional provisions apply to your specific circumstances.

Planning Before April 2026

With the changes that took effect from 6 April 2026, there is a window of opportunity to review and restructure estate plans. Strategies may include: restructuring business assets to maximise BPR below the £2.5 million cap; reviewing pension arrangements; making lifetime gifts; and updating wills and trust structures. Early action is recommended, as some strategies require time to implement and the 7-year gifting rule means earlier gifts are better protected.

Key Points

What You Need to Know

From 6 April 2026, 100% BPR/APR is capped at £2.5 million combined
Above £2.5 million, relief is reduced to 50% (effective 20% IHT rate)
Unused pension funds become subject to IHT from April 2026
Transitional provisions may apply for assets held before 30 October 2024
Planning can significantly reduce the impact of the changes

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Inheritance Tax Frequently Asked Questions

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Nil-Rate Band & Residence Nil-Rate Band Business Property Relief (BPR)April 2026 IHT Changes Agricultural Property Relief (APR)Lifetime Gifting & the 7-Year Rule Trusts & Inheritance Tax IHT for Married Couples IHT on Property & Estates IHT for Business Owners IHT Exemptions & Reliefs IHT on Foreign Assets IHT Planning Strategies IHT Rate & Calculation

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