On October 30th, the Chancellor, Rachel Reeves, delivered her long-awaited first Budget. Amongst the announcements she made were some changes to the Inheritance Tax (IHT) rules.

IHT is a tax on the estate of someone who has died, and you do not pay tax if your estate is below the £325,000 nil-rate band threshold (NRB), or if your estate passes to a spouse or civil partner, to charity or to a community amateur sports club.

In addition to this NRB, there is an additional £175,000 residence nil-rate band (RNRB) allowance if you give your main residence home to direct descendants (children, stepchildren etc). A single person, with a family home that passes to direct descendants can gift assets tax free up to a value of £500,000.

If IHT becomes payable, then it is paid at a rate of 40%. The last Government froze these allowances until 2028.

Some key takeaway points form this budget in relation to IHT are:

• The current NRB and RNRB allowances will now be frozen until at least 2030.

This means where a person dies and leaves their estate to a surviving spouse or civil partner, then their NRB and RNRB allowances also transfer so that up to £1 million of assets can pass, free of tax at the death of the second person (as long as there is also a family home that will pass to direct descendants).

If an estate has a value in excess of £2 million then the RNRB then there is a taper in place which will reduce this allowance until it reaches zero. For every £2 excess, the RNRB will reduce by £1.

• The Alternative Investment Market (AIM) was designed to assist, primarily fledgling companies, to raise capital. These companies are generally considered to be a risky investment and therefore attracted generous reliefs regarding IHT. The Chancellor has announced that, from April 2026, the IHT relief is to be reduced from 100% to 50%.

• The general position just now with regard to the inheritance of a ‘pension pot’ is that it falls outside of a person’s estate for the purposes of IHT. From April 2027, inherited pensions, unused pensions and death benefits will fall into a person’s estate for the purposes of IHT calculations.

• Agricultural Property Relief (APR) is also set to change. Currently, APR gives a 100% relief on the agricultural value of land and buildings occupied for agricultural purposes (this may not necessarily be the total value of the land). To get this relief the land must have been occupied and fared by the deceased for at least two years prior to their death, or where another person (e.g. tenant farmer) has farmed the land for at least seven years prior to their death. Under current rules there is no limit on the amount of relief.

From April 2026 100% APR will be available on agricultural property up to a value of £1 million. Anything above this new threshold will only be able to claim a 50% relief.

This new £1 million allowance will also include any relevant business property that might qualify for 100% Business Property Relief (BPR).

Unlike the NRB and RNRB allowances, this new £1 million APR/BPR allowance will not transfer to a surviving spouse or civil partner.

• BPR currently gives 100% relief for IHT purposes for business which are trading businesses. A 50% relief is applied to assets personally owned by a shareholder or partner and which are used by their company or partnership business.

From April 2026 the value of business assets above £1 million will attract 50% relief.

It should be noted that this is effectively going to be a single allowance meaning: 100% relief can be claimed for APR, or for BPR; alternatively, agricultural and business assets with a combined value of £1 million will also attract the £1 million relief.

Details of exactly how these changes will be given effect are still not entirely clear. However, you may wish to review the provisions of your Will, particularly if you are a farmer or the owner of a trading business.

If you would like to discuss making a new Will, or reviewing your existing Will, then please get in touch with our Private Client Department who will be happy to discuss things with you and give advice appropriate to your circumstances. With offices across Sussex, we would be able to meet with you to discuss things in person or, if you prefer, we can conduct video call meetings.