UK IHT changes

In the Labour Budget in October 2024, there were a number of significant announcements in relation to inheritance tax (IHT). The proposed changes represent a seismic shift in the UK IHT regime, one which has prompted many farmers and business owners to consider their IHT position in an effort to minimise their exposure to one of the most emotive duties.

Under the current IHT rules, agricultural property and business assets meeting certain conditions are exempt from UK IHT, but that situation is due to change within the coming months.

Incoming IHT changes

From 6 April 2026, the government will introduce a cap on the assets eligible for IHT relief. For any value above the cap, an effective IHT tax rate of 20% will apply. While a significant leap, it’s worth remembering that this is half of the standard 40% IHT rate which applies to assets which do not qualify for any IHT exemptions.

On 23 December 2025 there was the welcome announcement that the cap would be increased from the previously announced £1 million to £2.5 million per person. The overall impact is that spouses can now pass on up to £5 million of eligible assets before paying IHT. While the government has indicated the December announcement may halve the number of farms affected by the reforms, there are still farmers and business owners now facing IHT liabilities post April 2026.

For estates above £5 million, with just three months until the new IHT laws come into force, there is still time for farmers and business owners to act quickly to mitigate the potential impact on their estates.

Susan Smyth

Director

KPMG in Ireland

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IHT liabiities

In the past, a “do nothing” approach may have been the default option as no IHT may have been paid on death on agricultural and business assets, and such assets are inherited with a tax-free value uplift for the heirs.

The impact of the restriction on reliefs is that, for the first time, farmers and business owners may be exposed to and have to fund an IHT liability. In order to pay an IHT bill assets may have to be sold or an IHT payment fund will have to be set aside. Where inherited assets are not sold by the beneficiaries, other tax costs may arise. This is likely to have a significant impact on the business, especially from a cash flow perspective.

The table below provides a simplified illustration of the potential impact:

Farm / Business Value	£10m
100% IHT exemption	(£5m)
Value liable to IHT	£5m
IHT liability at 20% to be funded	£1m

Farm / Business profits	£1.8m
Income tax at 45%	(£0.8)
Cash available	£1m

Total tax cost (IHT and income tax)	£1.8m
Value of farm / business	£10m

Given the proposed changes, reviewing existing IHT and succession plans is imperative. Key considerations include:

Review wills now

Review wills now to ensure that the potential IHT reliefs are considered including the potentially available £5 million cap.
Gifts during lifetime may now be more attractive

A gift to an individual will fall outside the scope of IHT provided the person making the gift survives for seven years. There is also a reduced rate of tax which applies where the person making the gift survives between three and seven years after the date of the gift. However, at times there is a reluctance for individuals to lose control of the gifted of assets. This may be an emotive decision, particularly the case in some family businesses where a gift may alter family dynamics or where there is no clear next generation succession.
Consider trust planning.

In the absence of IHT relief, there would be a 20% upfront IHT charge on asset value passing into a trust. Before 6 April 2026, it may be possible to potentially transfer qualifying farm and business assets into a trust without this upfront IHT charge. Even after 6 April 2026, it would be possible for two spouses to transfer a combined value of £5 million of eligible assets into trust. Although a trust may result in certain tax complexities they are a long-standing option considered by individuals. A trust can include a range of potential beneficiaries and this can defer the decision as to who should ultimately control key family assets.
Consider liquidity and funding of potential IHT liabilities

HMRC allow a taxpayer to pay an IHT liability over a 10 year period, however estates must still plan to meet the cash flow. Seeking life cover to help fund future IHT payments should be considered.
Engage early professional advice

With detailed draft legislation already published it is important that all options are considered and an informed decision is made.

The IHT reforms mark one of the most significant changes to the IHT regime in recent years.

Recalibration of long-term plans around family farming and business assets should be considered to ensure that all parties are clear as to the potential implications of these changes.

This article originally appeared in The Belfast Telegraph (20 January 2026) and is reproduced here with their kind permission.