Inheritance Tax Reforms: The clock is now ticking
The draft legislation, published following the Autumn Budget 2024, confirms two big changes:
1. From 6 April 2026, the scope of Business Property Relief (BPR) and Agricultural Property Relief (APR) will be tightened.
2. From 6 April 2027, most unspent pension funds will fall within the scope of Inheritance Tax.
What’s changing and why it matters?
Business & Agricultural relief harder to claim
The rules for BPR and APR are being narrowed. That means assets you might reasonably have expected to pass free of IHT will, in many cases, no longer qualify.
One key blow: From April 2027 property held within a pension scheme will no longer qualify for BPR or APR . For many business owners, it was standard practice to own commercial premises via a Self-invested Person Pensions (SIPP) or Small Self-Administered Schemes (SSAS) That strategy is now firmly in the crosshairs.
Pensions dragged into the net
From 2027, most unspent pension pots will be taxed at death. For years, pensions have been one of the few reliable ways to pass on wealth tax-efficiently—particularly after the reforms of the mid-2010s. That’s now coming to an end.
The Treasury says only around 8% of estates will be affected, but this feels like the start of a longer-term shift in how pensions are treated for Inheritance Tax.
So at what cost?
The government thinks the APR and BPR changes will affect just 0.3% of estates, raising £0.5bn in 2027/28. The pension reforms are expected to raise a further £0.6bn. These figures are of course theoretical—they depend heavily on how people respond in practice.
What we do know is that the administrative burden will rise sharply.
· Pension scheme administrators are looking at £60m in one-off costs, and £5m per year going forward.
· HMRC itself expects at least £7.5m in operational costs and will need to hire more staff—easier said than done
Taxpayers will bear much of this pain, either directly or indirectly.
Liquidity, instalments and unintended consequences
One under-reported detail is the knock-on effect for estate liquidity. Farms and businesses are typically asset-rich but cash-poor. Introducing IHT where none was expected could leave executors scrabbling to pay the bill.
To mitigate this, the 10-year interest-free instalment option will now apply more broadly to BPR and APR assets. That’s helpful—but not without risk.
If a property is sold, even partially, the remaining tax becomes payable immediately. And if an asset is passed to a beneficiary who fails to pay their share, the personal representatives remain liable. In other words, more complexity, more cost, more risk.
Expectestates to stay in administration longer, especially with HMRC likely to scrutinise valuations more closely. That means delays, higher legal fees, and additional stress for families already navigating a difficult period.
IMPORTANT INFORMATION
This is an information and opinion-based article and does not constitute investment advice and should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not consider any investors particular investment objectives, strategies, tax status or investment horizon. Investment portfolios may invest in assets which are not readily realisable or where there is counterparty risk. Changes in rates of exchange may have an adverse effect on the value, price or income of an investment.