Inheritance tax changes: APR and BPR allowances increased to £2.5m

The Government has announced a notable update to the forthcoming changes to Inheritance Tax (IHT) Business Property Relief (BPR) and Agricultural Property Relief (APR). After listening to feedback, the Government has announced that the allowance for 100 percent relief has now been increased from £1 million to £2.5 million.

This change will apply alongside the previously announced reforms taking effect from 6 April 2026, and it offers welcome breathing space for some. However, beyond this increased 100 percent relief allowance, and the Autumn Budget 2025 announcement that, for individuals, amounts of unused 100 percent relief allowance will be transferable to a surviving spouse or civil partner (including where the first death is before 6 April 2026), the core changes to the BPR/APR relief structure remain in place.

It is therefore essential that, before these new rules come into effect on 6 April 2026, those who may be affected ensure they understand the impact of these new rules, check succession plans are still fit for purpose, calculate their future IHT exposure and think ahead about how to fund this additional tax cost.

The changes to BPR and APR were first announced at Autumn Budget 2024 and confirmed on Legislation Day (L-Day) in July 2025. Legislation is included in Finance Bill 2025-26 which is currently making its passage through Parliament and is anticipated to receive Royal Assent before these new rules come into effect.

From 6 April 2026, assets that currently qualify for 100 percent APR and BPR relief will instead receive only 50 percent relief, subject to the new 100 percent relief allowance. This includes shares in unquoted trading companies and farmland. Whilst the increased 100 percent relief allowance reduces the immediate impact for some, the reduction in BPR and APR relief to only 50 percent means many estates and trusts will face higher IHT liabilities than before, with some for the first time needing to undertake valuations in order to calculate their tax exposure and work out how to fund this tax cost.

Following the latest announcement these are the key features:

• Relief Structure: From 6 April 2026, for transfers that qualify, 100 percent relief will apply up to the £2.5 million allowance; above this threshold, qualifying BPR and APR assets will attract only 50 percent relief;
• Trusts: Each trust will have its own 100 percent relief allowance, but where a settlor has created multiple trusts after 30 October 2024, the £2.5 million allowance will be shared across trusts created after this date. Trusts created before this date should each have the full £2.5 million allowance;
• Payment Options: For transfers that are within the specified circumstances for payment by instalments, the instalment option for paying IHT over 10 years will be extended to all assets eligible for BPR or APR, but interest implications and conditions must be carefully considered; and
• Pensions: From April 2027, most unused pension funds will be included in the estate for IHT purposes, with no BPR or APR available.

For further information see our earlier articles including Inheritance tax reform: A once-in-a-generation change, Autumn Budget 2025: IHT Tax Business and Agricultural Property Reliefs and L-Day: Inheritance Tax Business and Agricultural Property Reliefs.

The increase in the 100 percent relief allowance to £2.5 million is a positive development, but it does not eliminate the need to plan ahead. Those affected should consider reviewing their position now, including funding options, and seek professional advice to navigate the complexities of the new rules. In particular, individuals and trustees may wish to consider:

• Assessing Exposure: Understand the potential IHT liability under the new rules, including confirming valuations of qualifying assets;
• Funding Strategies: Consider options for funding future liabilities, such as life insurance, borrowing or extracting liquidity from businesses - bearing in mind the tax implications of each;
• Gifting: Explore succession plans such as lifetime gifting before April 2026 to manage exposure to the increased tax costs, factoring in transitional rules and capital gains tax consequences; and
• Reviewing Wills and Trusts: Ensure wills and trust structures remain fit for purpose under the new regime.

Please contact your local KPMG Family Office and Private Client contact or the authors of this article for further information and help with understanding the impact of these changes and to identify actions you may wish to consider before these new rules come into effect from 6 April 2026.

For further information please contact:

• Hannah Barraclough
• Nathan Potton