Update: succession planning under the new IHT relief landscape — what should families consider now?

Scheduled to take effect from 6 April 2026, these changes will significantly reshape how family businesses and farms are taxed on succession, prompting a timely reassessment of estate planning strategies.

This update builds on our earlier article “Time for action: succession planning strategies before the IHT relief cliff edge” and outlines the key developments and practical considerations that families and advisers should now be factoring into their succession plans.

Relief caps and planning implications

One of the most impactful changes is the introduction of a cap on the value of qualifying assets that can benefit from full IHT relief. Under the new regime:

• only the first £1 million (combined) of qualifying business and/or agricultural property will benefit from full relief;
• any value above that threshold will receive reduced relief at 50%, resulting in a 20% IHT charge on the excess.

This cap applies both to individuals making lifetime transfers and to trusts receiving qualifying property, and it resets on different cycles - every 7 years for individuals, and every 10 years for trusts.

However, one of the most important distinctions under the new regime is how the £1 million relief allowance applies differently to individuals and trusts.

• Individuals can transfer up to £1 million of qualifying business or agricultural property every 7 years without triggering an immediate IHT charge - assuming no other chargeable transfers in that period.

  This creates a rolling opportunity to pass on value tax efficiently over time.

• Trusts, on the other hand, face a more rigid framework. The £1 million relief cap applies collectively to qualifying property held across all trusts established by the same settlor and is assessed over each 10-year period. This includes any relief already applied to exit charges since the previous 10-year anniversary.

  Once the trust’s cumulative allowance is exhausted, any further qualifying property settled into it will only benefit from reduced relief and may give rise to additional inheritance tax charges.

• There is a further complication for trusts. A trust does not automatically receive £1 million of relief at 100%. The threshold for the 100% relief is set at the lower of £1 million or the value of the qualifying property settled into trust.

  Consequently, should a trust be settled with £1 million of cash that is used to purchase qualifying property, the trust would not receive any relief at 100% despite owning £1 million of qualifying property on a tenth anniversary.

Planning considerations

1. Gifting strategies should be carefully timed to align with the individual’s 7-year cycle, ensuring that the full relief allowance is available.
2. Trusts must monitor their own relief usage across each 10-year period.
3. Families should consider coordinating gifts and trust settlements to optimise relief across generations.

A new restriction on certain unquoted shares

The new rules introduce restrictions on the types of shares that qualify for full relief. This means that the following types of shares will only qualify for 50% relief even if they are within the £1 million allowance.

• Shares traded (but not listed) on a recognised exchange, are specifically excluded from full relief under the new framework, which include AIM shares.
• Shares traded on unrecognised foreign exchanges will also be restricted to reduced relief.

Planning considerations

1. Review all investment portfolios to identify shares that may no longer qualify for full relief.
2. Consider restructuring holdings or transferring shares into trusts or family members before the new rules take effect.

Instalment options - expanded flexibility

One welcome development is the extension of the option to pay IHT in 10 equal annual instalments, interest-free, for all qualifying business and agricultural property - not just land and buildings.

This change offers greater flexibility for estates inheriting shares, machinery, or other business assets that may otherwise trigger liquidity issues.

Planning considerations

1. Where qualifying assets are retained rather than sold, consider electing for instalment payments to ease cash flow.
2. For chargeable lifetime transfers (CLTs), trustees and donors should also consider electing for instalment payments where qualifying business or agricultural property is involved.
3. Review both estate and trust planning strategies to incorporate the expanded instalment flexibility from April 2026.

Timing is everything - transitional rules and deadlines

While the new regime begins on 6 April 2026, transitional rules mean that gifts made before this date may still benefit from the current reliefs - provided the donor survives for seven years.

This creates a narrow window of opportunity for families to act under the existing rules.

Planning considerations

1. Accelerate planned transfers of qualifying property before the transitional deadline to preserve access to full relief.
2. Consider using life insurance to hedge against the risk of premature death and the resulting IHT exposure. Specialist IHT insurance products are available.
3. Review existing trust structures to ensure they are optimised under both the current and future regimes.

Final thoughts

The reforms to business and agricultural property reliefs represent a fundamental shift in how succession is taxed. While the window for action remains open, the complexity and potential exposure mean that
early, informed planning is essential.

Families should now…

• Review all succession plans considering the new relief caps and asset restrictions.
• Coordinate gifting and trust strategies across generations and time periods.
• Engage professional valuation and legal advice to support decision making.