The main rate of IHT remains at 40%, reduced to 36% for estates where 10% or more is left to charity.

The IHT nil rate band will continue to be frozen at £325,000 until 2030. The additional nil rate band for passing on the family home to direct descendants (residence nil rate band) will also remain at £175,000 until 2030. This means that married couples and civil partners will generally not pay inheritance tax where their combined estate is valued below £1 million. Note however that the residence nil rate band continues to be tapered where the value of the estate exceeds £2 million.

Gifts made by an individual in the 7 years prior to their death are classed as ‘potentially exempt transfers’ and can give rise to an IHT liability on death. Despite speculation in the run up to the budget, there will be no changes to this regime. Furthermore, taper relief continues to apply, reducing IHT payable where there are more than 3 years between the date of the gift and the date of death.

As mentioned above, it is proposed that, from April 2027, most undrawn pension funds and death benefits will be included within the value of a person’s estate for IHT purposes.

Farmers and business owners

The government is proposing to reform IHT agricultural property relief (APR) and business property relief (BPR) from 6 April 2026. Relief of up to 100% is currently available on qualifying business and agricultural assets with no financial limit.

From 6 April 2026, it is proposed that 100% relief will only apply to the first £1 million of combined agricultural and business property, with the relief reducing to 50% on the value that exceeds £1 million. This means the relief will be focused on small family farms and businesses.

In a further proposed change, the rate of BPR available for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM, will be reduced from 100% to 50%.

As an anti-forestalling measure, the new rules will apply to lifetime transfers made on or after 30 October 2024 if the donor dies on or after 6 April 2026.