Draft Finance Bill 2025-26: Inheritance tax provisions

The draft Finance Bill for 2025-26 was published on 21 July. In this article, we set out the key inheritance tax (IHT) measures in relation to agricultural and business assets included in the bill.

Draft Finance Bill 2025-26: Summary and key changes

The key provisions of the draft legislation reflect the measures announced in the Autumn 2024 budget.

From 6 April 2026, the 100% relief from IHT currently available in relation to agricultural and business assets will only apply to the first £1m of such assets (the allowance), with 50% relief available thereafter (an effective 20% rate for individuals and 3% for trusts). 

Investments not listed on the markets of a recognised stock exchange (most notably AIM shares) will only benefit from 50% relief rather than the 100% relief currently available. 

This means that individuals who hold assets qualifying for agricultural property relief (APR) and business property relief (BPR) could find that the anticipated IHT exposure on their death will increase significantly from 6 April 2026 unless action is taken before then.

Similarly, trustees holding APR and BPR qualifying assets, who have not had to pay tax charges on trust distributions or 10-year anniversaries to date, will need to consider how these could be funded or mitigated from 6 April 2026 onwards.

Key provisions

• The allowance will not be transferable between spouses, so married couples should make sure they each hold assets allowing them to utilise their allowance in full. This may require a transfer of assets between spouses.

• The allowance will renew every seven years for individuals in the same way as the nil rate band. This would allow individuals to transfer APR/BPR qualifying assets up to the value of the allowance into trust every seven years.

• The option to pay IHT (on death or for trusts) by equal, annual, interest-free, instalments over 10 years is to be extended to all assets qualifying for APR or BPR whether they do so at 100% or 50%.

• The allowance will be indexed in line with the Consumer Price Index (CPI) from 2030. 

Trust provisions

• Where trusts were in existence prior to 30 October 2024 (Budget Day), they will have their own Allowance despite being established by the same person. 

• Where trusts were in existence prior to Budget Day, the current rules will continue to apply to those trusts in relation to tax charges on distributions from the trust until the first 10-year anniversary after 6 April 2026. This could allow trustees more time to decide whether to make outright distributions to beneficiaries before the next 10-year charge, rather than having to make that decision prior to 6 April 2026.

• The allowance will renew every 10 years for discretionary trusts, meaning it would be available to set against the tax charge at every 10-year anniversary.

• Any trusts set up by the same person on or after Budget Day will share an allowance between them and the allocation of the shared allowance will be chronological and fixed at the outset.

• There had been a suggestion that APR/BPR assets held in different trusts established by the same person after Budget Day would be valued together, which would have increased asset values and resulted in higher tax charges on trusts’ ten-year anniversaries and on assets leaving the trusts. This suggestion has not been implemented in the draft legislation, which does provide an opportunity for APR/BPR assets held across multiple trusts to benefit from minority shareholding or joint property valuation discounts leading to less IHT.

Next steps

We anticipate that the above measures will come into force on 6 April 2026 with little if any amendments, so recommend that clients act now to understand and mitigate the impact of these changes as much as possible. 

Looking ahead

Please do get in touch with us or your usual Browne Jacobson contact if you would like to discuss how the draft legislation could impact you and your family and to explore planning opportunities relevant to your particular circumstances.

How the bill is set to impact pensions