Starting in 2026, the Chancellor will introduce further reductions to Agricultural Property Relief (APR) and Business Property Relief (BPR). The first £1 million of combined business and agricultural assets can still be passed on tax-free, but inheritance tax (IHT) will be applied at a rate of 20% on any amount above this threshold. Additionally, AIM shares will also be subject to the 20% IHT rate.
The Office of Budget Responsibility estimates that these changes will lead to an additional 1.5% of total UK deaths becoming liable for IHT. This equates to 10,500 out of approximately 213,000 estates with inheritable pension wealth in 2027–28. Furthermore, 38,500 estates are projected to incur an average additional IHT charge of £34,000 due to the inclusion of pension assets in estate valuations.
Under current rules, the changes could result in some pension pots being “double-taxed.” If the pension holder dies at age 75 or older, beneficiaries may face income tax on withdrawals from the pension, in addition to IHT already applied to the pot.
Gary Smith, a financial planning partner and retirement specialist at wealth management firm Evelyn Partners, stated:
“From 2027, more families will find themselves entangled in inheritance tax obligations, and early planning will be crucial to mitigate these effects.
“The IHT rule changes will significantly impact how some savers approach their pensions and retirement funding. Retirees, particularly those nearing or over age 75, may need to reconsider their pension strategies, likely resulting in increased pension drawdowns.
