If you own a home, a family business, a farm, or a decent-sized pension, the rules around inheritance tax are shifting, and not in a small way. Some of these changes are already law and take effect from April 2026. Others land a year later, in April 2027. Either way, if your estate planning was put together more than a couple of years ago, it is worth checking whether it still holds up.
At Burbage Finance, we speak to Coventry families every week who assume their estate is sorted because they wrote a will a decade ago and never looked at it again. The changes below are exactly the kind of thing that can quietly undo that planning. Here is what is actually changing, who it affects, and what you can do about it now.
Before getting into the changes, it helps to remember the basics. Inheritance tax (IHT) is charged at 40% on the value of an estate above the nil-rate band, which is £325,000 per person. On top of that, there is a residence nil-rate band of up to £175,000 if you are passing on a home to children or grandchildren. Together, a married couple or civil partners can often pass on up to £1 million tax-free once both allowances are combined, thanks to transferable allowances between spouses.
These thresholds have been frozen for years and are set to stay frozen until April 2031. That freeze matters more than people realise. As house prices and pension pots grow, more estates get pulled into paying IHT even though nothing about the family’s actual wealth has changed in real terms. This is often called fiscal drag, and it is one of the quieter reasons more Coventry families are facing an inheritance tax bill for the first time.
Change 1: Business and agricultural relief is being capped from April 2026
This is the change with the longest history and the most back-and-forth. Under the current rules, Business Property Relief (BPR) and Agricultural Property Relief (APR) can reduce the value of qualifying business or farm assets by 100%, with no upper limit. In practice, that has meant many business owners and farmers could pass on their assets completely free of inheritance tax.
From 6 April 2026, that changes. The government originally proposed capping 100% relief at the first £1 million of combined business and agricultural assets, with only 50% relief on anything above that. Following pressure from farming groups and business owners, the government revised this in December 2025 and raised the cap to £2.5 million per person. Above that threshold, assets qualify for 50% relief, which works out as an effective rate of 20% on the excess.
For a married couple or civil partners, because each person gets their own £2.5 million allowance, this can mean up to £5 million in qualifying business or agricultural assets passing free of IHT between them, on top of the standard nil-rate bands.
Who this affects: business owners, farmers, and anyone holding shares that qualify for BPR. If your combined qualifying assets sit close to or above £2.5 million, this is worth reviewing now rather than waiting until closer to the deadline.
Change 2: AIM shares lose their full relief
Shares listed on the Alternative Investment Market (AIM) have long been a popular inheritance tax planning tool, because many of them qualify for Business Property Relief. Until now, that relief could be 100%, provided the shares were held for at least two years before death.
From April 2026, that relief is being halved. AIM shares will only qualify for 50% relief, and unlike the £2.5 million allowance above, this reduced rate applies regardless of the value involved. AIM shares do not benefit from the £2.5 million cap at all; the 50% rate simply applies across the board.
Who this affects: anyone using AIM-listed shares as part of an IHT mitigation strategy. If this is part of your portfolio, it is worth revisiting the reasoning behind holding them, since the tax advantage that originally justified the risk is now significantly reduced.
Change 3: Pensions become part of your taxable estate from April 2027
This is the change generating the most conversation, and for good reason. For decades, unused pension funds have sat outside a person’s estate for inheritance tax purposes. Most defined contribution pensions are set up under discretionary trust arrangements, which is what kept them out of the IHT net. It made pensions one of the most effective ways to pass on wealth to the next generation.
The Finance Act 2026, which received Royal Assent in March 2026, changes this. From 6 April 2027, most unused pension funds and death benefits will be included in the value of your estate for inheritance tax purposes. If your total estate, pension included, exceeds your available nil-rate bands, the excess could be taxed at 40%.
There are some important exceptions. Pensions passing to a surviving spouse or civil partner remain exempt, in line with the existing spousal exemption. Benefits passing to a registered charity also remain exempt. Death-in-service lump sum benefits, such as the payout from a workplace scheme if someone dies while employed, are excluded entirely. Defined benefit pensions, like final salary schemes, are largely unaffected since these typically cannot be passed on in the same way.
Who this affects: anyone with a meaningful defined contribution pension pot who was planning to leave it to children or other non-exempt beneficiaries. HMRC estimates around 10,500 estates will pay inheritance tax for the first time as a direct result of this change. If your retirement planning assumed your pension would sit outside your estate, that assumption no longer holds from April 2027 onward, and your will and beneficiary nominations may need updating together.
What this means if you live in Coventry
None of these changes are about closing loopholes for the ultra-wealthy. They affect ordinary families who happen to own a business, a farm, some AIM shares, or simply a healthy pension pot after years of saving. Coventry and Warwickshire have plenty of family-run businesses and a fair amount of agricultural land on the outskirts, so the BPR and APR changes are especially relevant locally. And with property values across the West Midlands having risen steadily, more households are edging closer to the nil-rate band thresholds than they might expect.
The practical takeaway is this: estate planning is not a one-off task. Wills, pension nominations, trusts, and gifting strategies all need to be looked at together, and they need revisiting whenever the rules shift this much.
What you can do now
- Review your will alongside your pension nomination forms, since these changes affect how the two interact.
- Get a proper valuation of any business or agricultural assets if you are close to the £2.5 million threshold.
- Reassess whether AIM shares still make sense in your portfolio given the reduced relief.
- Look at gifting strategies while you still have time for gifts to fall outside the 7-year rule.
- Speak to an adviser who understands both the current rules and how the April 2026 and April 2027 changes interact with your specific estate.
This is exactly the kind of planning our team at Burbage Finance works through with clients across Coventry every day. If your estate plan was built before these changes were announced, now is a sensible time to have it looked at again.
Frequently Asked Questions
The Business Property Relief and Agricultural Property Relief changes take effect from 6 April 2026. The AIM shares relief reduction also applies from 6 April 2026. The pension changes are separate and come into force later, from 6 April 2027.
Not exactly, but it can feel that way. If you die after age 75, your beneficiaries may face inheritance tax on the pension value first, and then income tax when they draw down the remaining funds. This combination is one of the more significant practical effects of the 2027 change, and it is worth planning around.
It applies per person. Because the allowance is not shared, a married couple or civil partners each get their own £2.5 million allowance, meaning up to £5 million combined can pass free of the restricted relief. Couples who are cohabiting but not married or in a civil partnership do not get this combined benefit and remain capped at £2.5 million between them.
They still offer some relief, just less than before. From April 2026, AIM shares qualify for 50% relief rather than 100%, and this reduced rate applies to the full value with no separate allowance. Whether they still make sense depends on your wider estate and risk tolerance, which is worth discussing with an adviser rather than deciding based on the tax treatment alone.
Generally, no. Defined benefit pensions, such as final salary schemes, typically cannot be passed on to beneficiaries in the same way defined contribution pots can, so most of these changes are aimed at defined contribution pensions rather than final salary schemes.
If you pass away before 6 April 2027, your pension generally remains outside your estate for inheritance tax purposes under the current rules. The new treatment only applies to deaths on or after that date.
Gifting can be an effective strategy, particularly using the 7-year rule, but it needs to fit your wider financial position and shouldn’t leave you short in retirement. This is something worth discussing with a financial adviser rather than doing in isolation, especially with these other changes now layered on top.
Quite possibly. If your will or estate plan was written with the assumption that your pension would sit outside your estate, or if you hold business, agricultural, or AIM assets near the new thresholds, it is worth having your will and estate plan reviewed against the new rules.
Conclusion
Inheritance tax planning has never been something you set up once and forget about, but these changes make that more true than ever. Between the business and agricultural relief cap, the reduced relief on AIM shares, and pensions entering the taxable estate from 2027, the assumptions many Coventry families built their plans around are shifting under their feet.
The good news is that none of this is unmanageable if you plan ahead. Whether that means adjusting how your business or farm is structured, rethinking your investment portfolio, or coordinating your will with your pension nominations, there is time to act sensibly rather than react under pressure later. Burbage Finance works with families across Coventry to make sense of exactly this kind of change, and we would be glad to talk through what it means for your specific situation.
