Last updated: 14 October 2026
What was the government’s climbdown on Inheritance Tax for family firms?
On 23 December 2025, the government announced that the new cap on 100% business and agricultural property relief would be £2.5 million per person, instead of the £1 million proposed at the October 2024 Budget. The change took effect from 6 April 2026. Qualifying business and agricultural assets above £2.5 million get 50% relief, so the excess is taxed at an effective 20%. Unused allowance can pass to a surviving spouse or civil partner, so a couple can pass on up to £5 million of qualifying assets with no Inheritance Tax.
How the rules work from 6 April 2026
| Item | Rule |
| 100% relief allowance | £2.5 million combined for business and agricultural property, per person |
| Relief above the allowance | 50%, so an effective IHT rate of 20% |
| Transfer to spouse or civil partner | Unused allowance transfers, including for deaths before April 2026 |
| AIM and other “not listed” shares | 50% relief only; they don’t use the allowance |
| Lifetime gifts | Gifts from 30 October 2024 within 7 years of death count towards the allowance |
| Instalments | IHT on qualifying assets can be paid over 10 years, interest-free |
Example
Graham dies in 2026/27 owning shares in his trading company worth £4 million, plus a £500,000 home left to his children. The first £2.5 million of shares gets 100% relief. The remaining £1.5 million gets 50% relief, so £750,000 is chargeable. Adding his £500,000 home gives a chargeable estate of £1.25 million. The residence nil-rate band is lost completely, because his estate is valued at over £2 million before reliefs. After his £325,000 nil-rate band, £925,000 is taxed at 40%, which is £370,000. If his wife had died earlier without using her allowance, his estate could claim her £2.5 million too, giving 100% relief on all the shares.
What business owners should do
- Get a valuation of your business and agricultural assets
- Check that the business is mainly trading, as investment companies don’t qualify
- Review wills so allowances aren’t wasted on the first death
- Consider lifetime gifts, remembering the 7-year rule and CGT
- Check life insurance cover for any IHT left to pay
Paying the tax
Where IHT falls on business or agricultural property, executors can choose to pay it in 10 equal yearly instalments, without interest. This helps families keep a business going without a forced sale. The first instalment is due 6 months after the end of the month of death.
Why it was called a climbdown
The original £1 million cap led to protests from farmers and family business groups, who warned that heirs might have to sell assets to pay the tax. Raising the cap means far fewer estates are affected. The government estimated that up to 220 estates claiming only business relief would pay more IHT in 2026/27, down from 325.
Frequently asked questions
Does the allowance apply to trusts?
Yes, trusts have their own £2.5 million allowance, with special rules.
Are AIM shares still worth holding for IHT?
They still get 50% relief.
What about farmland let to tenants?
It may qualify for agricultural relief.
Does the change affect CGT?
No, CGT rules on death are unchanged.
Related: the changes to farm relief, agricultural relief and reducing an estate below £2 million.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with Inheritance Tax for family businesses. See our small business accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
