NOT financial advice - seek advice from a professional for your specific situation

    TaxKilnUK tax guidance
    TaxKilnUK tax guidance

    Inheritance Tax + April 2026 BR/APR Reform

    UK Inheritance Tax (IHT) charges 40% on the value of an estate above thresholds at death, plus certain lifetime transfers within 7 years before death. **2025/26 thresholds**: **Nil-Rate Band £325,000** (frozen since 2009; Autumn Budget 2025 extended freeze to **April 2031**). **Residential Nil-Rate Band £175,000** (qualifying main home passing to direct descendants; tapers from £2m estate). **Spouse / civil partner exemption** unlimited; NRB + RNRB TRANSFERABLE to surviving spouse. **Combined family allowance**: married couple with main home can shelter up to £1 million (NRB+RNRB×2). **40% rate** above thresholds; **36% rate** where 10%+ of estate left to charity. **APRIL 2026 BR/APR REFORM (Finance Bill 2025-26)**: combined Business Relief + Agricultural Property Relief allowance CAPPED AT £2.5 MILLION per individual at 100% relief; above £2.5m, relief reduces to 50% (effective 20% IHT rate). Originally proposed at £1m (Autumn Budget 2024); revised to £2.5m after farming lobby pushback. **AIM SHARES**: from 6 April 2026, AIM-listed shares get FLAT 50% relief only (no access to the £2.5m 100% allowance). EIS shares on unlisted companies continue 100% BR within the cap. **APRIL 2027 PENSION REFORM**: unused pension funds + pension death benefits brought into IHT estate from 6 April 2027 (estimated 38,500 additional estates affected annually).

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    Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact HMRC. Read our editorial scope →

    What this relief is, in plain English

    UK Inheritance Tax is the wealth-transfer tax, charged primarily on estates above thresholds at death, plus certain lifetime transfers caught by the 7-year rule. The 2024-2026 reforms make IHT one of the most-changed areas of UK tax in recent years. **Core framework (2025/26):** - **NRB £325,000**: frozen since 2009; Autumn Budget 2025 extended freeze to April 2031. - **RNRB £175,000**: for main home passing to direct descendants; tapers from £2m estate. - **Spouse exemption unlimited**; NRB + RNRB transferable to surviving spouse on first death. - **40% rate** above thresholds; **36% rate** if 10%+ left to charity. - **Combined married couple shelter**: up to £1m via NRB + RNRB × 2. **April 2026 BR/APR £2.5m combined cap** is the largest IHT reform in decades. Pre-April-2026: unquoted trading company shares + qualifying farmland at 100% relief, no cap. Post-April-2026: £2.5m combined allowance at 100% relief; above £2.5m, 50% relief only (20% effective IHT). AIM shares moved to flat 50% (no 100% access). EIS shares on unlisted companies continue 100% within cap. **Spouse transferability**: £2.5m combined cap is transferable like NRB/RNRB. Married couple combined £5m of BR/APR-qualifying assets at 100% relief. Plus NRB/RNRB couple £1m. Plus margin = KPMG estimates ~£6.3m comprehensive shelter for substantial families. **Trust treatment** is more complex. Pre-30 October 2024 trusts holding BR/APR assets: each grandfathered with own £2.5m allowance for periodic + exit charges. Post-30 October 2024 trusts: share the settlor's £2.5m proportionately. **April 2027 pension reform**: unused pension funds + death benefits brought into IHT estate. ~38,500 additional estates affected annually. Major change to pension-as-estate-planning-vehicle position. **Lifetime gifting + 7-year rule**: gifts (PETs) become fully exempt if donor survives 7 years; taper relief from year 3 onwards (20%/40%/60%/80% reductions in years 4-7). Anti-avoidance: gifts with reservation of benefit (GWROB) treated as still in estate. **Non-dom reform April 2025**: domicile-based regime replaced by residence-based regime (10-year UK-residence test for IHT scope). Transitional rules for existing non-doms. For most middle-class estates (under £2.5m, owner-occupied home, modest BR/APR exposure), the practical IHT planning is: ensure spouse transferability mechanics used; structure main home to qualify for RNRB; consider lifetime gifting outside the 7-year window for substantial sums; maintain BR-qualifying business assets if applicable. For substantial estates (above £2.5m BR/APR + significant pension + main home + other wealth), specialist estate planning is essential from April 2026 onwards.

    How it works

    Nil-Rate Band + Residential Nil-Rate Band

    NRB £325,000 per individual (frozen since 2009, extended to April 2031). RNRB £175,000 (qualifying main home + direct descendants; tapers from £2m estate at £1 per £2). Both transferable to surviving spouse / civil partner on first death. Combined married couple shelter: up to £1m (NRB+RNRB×2).

    April 2026 BR/APR combined £2.5m cap

    From 6 April 2026: combined Business Relief + Agricultural Property Relief at 100% capped at £2.5m per individual. Above £2.5m: 50% relief only (20% effective IHT). AIM-listed shares: FLAT 50% only (no 100% access). EIS shares on genuinely unquoted companies: 100% within cap. Spouse transferable: combined £5m couple. Cap refreshes every 7 years for individuals (lifetime gift purposes); CPI indexation from April 2031.

    Lifetime gifting + 7-year rule + GWROB

    Gifts during lifetime are Potentially Exempt Transfers (PETs), fully exempt from IHT if donor survives 7 years. Death within 7 years: PET becomes chargeable at NRB-adjusted basis. **Taper relief** in years 4-7 (20%/40%/60%/80% reductions to the IHT rate). **Gifts with Reservation of Benefit (GWROB)**: gifts where donor retains use / benefit treated as still in estate, anti-avoidance. **Annual exemption £3,000/year** of lifetime gifts (carry forward 1 year unused). **Small gifts £250 per recipient/year** exempt. **Normal expenditure out of income exemption** for regular gifts from after-tax income.

    April 2027 pension reform + April 2025 non-dom reform

    **April 2027**: unused pension funds + pension death benefits brought into IHT estate. Personal representatives report + pay. Excluded: death-in-service from registered schemes; DB dependant's scheme pensions. ~38,500 additional estates affected annually. **April 2025 non-dom reform**: domicile-based regime replaced with residence-based test (10-year UK-resident for IHT scope). Transitional rules for existing non-doms.

    Who qualifies

    Interactions with other reliefs

    EIS Business Relief

    EIS shares in unquoted trading companies continue 100% BR within £2.5m cap from April 2026. AIM-listed EIS shares: flat 50% from April 2026. See [[eis]] for full EIS lifecycle including IHT positioning.

    BADR + Investors' Relief

    BADR is CGT-side exit relief; IHT is estate-side death relief. Different mechanics + thresholds. BR/APR cap doesn't affect BADR mechanics directly. Owner-directors planning exit + estate jointly: BADR on lifetime exit; BR on retained ownership at death.

    LSA + LSDBA + April 2027 pension reform

    Pension lump sums regulated by LSA (£268k tax-free cash) + LSDBA (£1.073m broader). April 2027 brings unused pension wealth into IHT estate. Combined effect: substantial pension estates face materially more tax complexity from April 2027. See [[lsa]] + [[lsdba]].

    Gift Aid + charitable bequests

    10%+ of estate left to UK-registered charity reduces IHT rate from 40% to 36%. Substantial estates often optimise charitable bequests around this threshold. See [[gift-aid]] for lifetime charitable giving mechanics; charitable bequest mechanics similar at death.

    Common mistakes + audit triggers

    Worked example

    John, Yorkshire - Unmarried Ltd Co founder with substantial BR-qualifying shares dies May 2027 (Death May 2027)

    John dies 15 May 2027 (post-April-2026 BR/APR reform). Unmarried. Estate: £5,000,000 of unquoted trading company shares (held 5+ years, qualifying BR); £500,000 main home (passing to adult children); £200,000 other assets. No prior chargeable transfers. Full NRB + RNRB available.

    Calculation: **Pre-April-2026 hypothetical (if died before 6 April 2026):** Unquoted trading company shares: 100% BR → £0 IHT on £5m. Main home £500k - RNRB £175k - NRB £325k = £0 chargeable. Other assets £200k absorbed within NRB / RNRB headroom. **Total IHT (pre-reform): £0.** **Post-April-2026 actual position (death May 2027):** Unquoted trading company shares £5m vs £2.5m BR cap. - First £2.5m at 100% BR → £0 IHT on this portion. - Remaining £2.5m at 50% BR → £1.25m chargeable (50% of £2.5m). - Main home £500k passes to adult children: RNRB £175k covers; £325k uses NRB. - Other assets £200k: NRB headroom exhausted by main home → £200k chargeable. **Total chargeable estate: £1,250,000 (BR excess) + £200,000 (other assets) = £1,450,000.** IHT at 40%: 0.40 × £1,450,000 = **£580,000.** **Charitable bequest scenario (10%+ to charity):** If John bequeathed £145,000 (10% of net chargeable) to UK charity: Rate reduces from 40% to 36%. IHT: 0.36 × (£1,450,000 - £145,000) = 0.36 × £1,305,000 = £469,800. **Saving: £110,200 in IHT, at a cost of £145,000 to charity**: net £34,800 cost for the £145,000 charitable gift. **Counter-factual: married couple position.** If John had been married + left estate to spouse: unlimited spouse exemption → £0 IHT on first death. On second death (spouse): combined £5m BR cap available + £1m NRB/RNRB couple = up to £6m at 100% relief. £5m business asset estate fits within £6m + £0 IHT. **Strategic implications:** 1. April 2026 reform makes unmarried + single substantial estates materially worse off than married estates. 2. Spouse transferability of the £2.5m cap is now the most important IHT planning mechanic for substantial business/farming families. 3. AIM share planning for IHT effectively ends April 2026 (50% flat relief only). 4. Lifetime gifting (7-year rule) plus £2.5m refresh every 7 years provides multi-cycle planning for very substantial estates. 5. Pre-30 October 2024 trusts grandfathered with full £2.5m each, substantial planning value for trusts established before that cliff date. 6. April 2027 pension reform: any unused pension wealth at John's death from April 2027 onwards also in estate. Personal representatives report + pay (not pension administrators). **Documentation + filing:** - IHT400 within 12 months of end of month of death. - IHT payment 6 months after end of month of death (instalment options for illiquid assets). - BR claim documented with company-level evidence (qualifying trade test, 50% non-trading-activity threshold, 2-year ownership). - Specialist tax + valuation adviser engagement essential for substantial estate IHT compliance.

    Statute reference: Inheritance Tax Act 1984 + Finance Acts annually + Finance Bill 2025-26 (BR/APR reform) IHTA 1984 throughout; ss.103-124B amendments by Finance Bill 2025-26. HMRC manual: IHTM00000 onwards.

    Frequently asked questions

    What happens if I miss the Self Assessment deadline?+
    The Self Assessment deadline is 31 January (online filing) for the previous tax year. Miss it and HMRC apply an automatic £100 penalty. Beyond that: £10 per day from 3 months late (capped at £900), 5% of tax due at 6 months late, and another 5% at 12 months late, under Schedule 55 of the Taxes Management Act 1970. If you have a genuine reason (serious illness, bereavement, technical issue with HMRC's systems) you can appeal with evidence; HMRC accepts reasonable excuse appeals in most genuine cases.
    Do I need an accountant or can I file Self Assessment myself?+
    Legally you can file Self Assessment yourself via gov.uk for free, most simple sole-trader returns (single income source, basic expenses) are realistic to self-file. An accountant adds real value when: your trading profit is above £40,000 (extraction-strategy decisions matter), you have multiple income streams (PAYE + self-employment + property + dividends), you've crossed the £90,000 VAT threshold, you're considering incorporation, or you have an HMRC enquiry. Expect to pay £400-£1,500/year for a typical sole-trader accountant; the cost is itself a deductible expense.
    How do payments on account work?+
    When your Self Assessment tax bill exceeds £1,000 for the first time, HMRC requires payments on account toward NEXT year's tax. Half the current bill is due 31 January (alongside the current bill); the other half is due 31 July. So your first January after crossing the threshold can hit with a double-bill: last year's balance + first payment on account. Adjust via Form SA303 if you expect next year's income to drop substantially. Payments on account don't apply if more than 80% of your tax is collected via PAYE.
    How does the £2.5m combined BR/APR cap actually work?+
    **Pre-April 2026**: Business Relief + Agricultural Property Relief at 100% (or 50% for certain categories), NO COMBINED CAP. Qualifying unquoted trading company shares + qualifying farmland passed at death = fully exempt from IHT regardless of value. **From 6 April 2026**: combined £2.5m allowance covers BOTH BR + APR per individual. **Above £2.5m**: relief reduces to 50%, effective IHT rate 20% (vs full 40% standard rate). **Example**: individual dies with £4m of qualifying unquoted trading company shares. Pre-April 2026: £4m fully BR-exempt → £0 IHT on the BR portion. From April 2026: first £2.5m at 100% relief (exempt); remaining £1.5m at 50% relief → 50% × £1.5m = £750,000 chargeable; IHT 40% × £750,000 = £300,000. **A previously-zero-IHT estate now pays £300k.** Spouse transferability means married couple combined £5m allowance, substantial protection for moderately wealthy farming + business families. KPMG estimates couples can collectively shelter ~£6.3m via combined BR/APR + NRB + RNRB.
    What changes for AIM-listed shares from April 2026?+
    **Pre-April 2026**: AIM-listed shares treated as 'unquoted' for BR purposes, qualifying for 100% BR after 2-year holding period. Many investors used AIM share portfolios for IHT planning. **From 6 April 2026**: AIM-listed shares get FLAT 50% BR only, no access to the £2.5m 100% allowance. Effective IHT rate on AIM holdings: 20% (50% of 40%). **EIS shares on AIM**: same treatment as AIM-listed, 50% relief only from April 2026. **EIS shares on GENUINELY UNQUOTED companies**: continue to qualify for 100% BR (subject to the £2.5m combined cap). **Practical implication**: AIM-share IHT-planning portfolios face permanent value reduction from April 2026. Investors with substantial AIM-share BR positions should review whether to: (a) accept the reduced relief; (b) shift to genuinely unquoted EIS investments before death; (c) realise + redeploy in other tax-efficient structures. Specialist tax + estate planning advice essential, material amounts at stake.
    What's happening with pensions + IHT from April 2027?+
    **Major reform announced Autumn Budget 2024, effective 6 April 2027**: unused pension funds + pension death benefits BROUGHT INTO IHT ESTATE for the first time. Pre-April-2027 position: defined contribution pensions passed broadly free of IHT to nominated beneficiaries; complex but generally tax-favoured. Post-April-2027 position: estimated 38,500 additional estates per year will pay IHT on pension wealth. **Excluded**: death-in-service benefits from registered pension schemes; defined benefit dependant's scheme pensions. **Process**: personal representatives (executors), not pension scheme administrators, responsible for reporting + paying IHT on pension wealth in estate. **Strategic implications**: pension as estate-planning vehicle substantially restricted from April 2027. Combined with the LSDBA (£1,073,100 cap on pre-75 tax-free death benefits) + the April 2026 BR/APR cap, substantial UK pension + business estates face materially more IHT planning complexity. See [[lsdba]] for the pension lump-sum-side mechanics.
    Should I gift assets before April 2026 to lock in old BR/APR rules?+
    **Gifts of BR/APR-qualifying assets made on or after 30 October 2024 will be assessed under the NEW post-6 April 2026 rules if the donor dies on or after 6 April 2026**: even though gift made pre-April 2026. The October 2024 announcement date is the cliff for new rules. **Gifts made before 30 October 2024** are assessed under OLD rules (full 100% BR/APR, no cap) if donor dies within 7 years. **Pre-30 October 2024 trusts** are grandfathered with full £2.5m allowance each. **Practical strategy**: for substantial BR/APR-qualifying estates, gifting strategies post-30 October 2024 don't lock in old rules, both lifetime gifts + death transfers from April 2026 face the £2.5m cap. **What might help**: (1) Spreading transfers across spouses to access combined £5m. (2) Trust structures established BEFORE 30 October 2024 (each grandfathered with own £2.5m). (3) Insurance + 7-year survival planning for gifts above £2.5m. (4) Charitable bequests for 10%+ of estate (drops rate to 36%). Specialist estate planning essential for affected estates.

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