If you own a business, hold significant pension savings or have simply built up more wealth than you casually assume, the inheritance tax landscape has shifted under your feet.
Two major changes, one already in force and one arriving in April 2027, mean that estate plans written even a few years ago may no longer achieve what you intend. Add a nil rate band that has been frozen since 2009 and the result is that inheritance tax, once a concern for a small minority, is becoming a mainstream problem for business owners and professional families across Cheshire. Here is what has changed, why it matters and what a proper review should cover.
The starting point: allowances that have not moved
Everyone has a nil rate band of £325,000 that can pass free of inheritance tax, with anything above that taxed at 40 percent unless a relief or exemption applies. That figure has not increased since 2009 and is currently set to remain frozen until at least 2030. There is an additional residence nil rate band of up to £175,000 where a home passes to children or grandchildren, but this tapers away for estates over £2 million, which catches many successful business owners entirely. While house prices, business values and investments have grown for more than fifteen years, the allowances have stood still and every year of that freeze quietly pulls more families into the tax.
The new cap on business and agricultural reliefs
For decades, Business Property Relief and Agricultural Property Relief have been cornerstones of succession planning for trading businesses and farms. Qualifying business and agricultural assets could pass on death, or into trust, with relief at 100% and with no upper limit, meaning even very substantial businesses could pass to the next generation free of inheritance tax. It is important to remember, however, that not every business qualifies for Business Property Relief. Broadly speaking, relief is available for qualifying trading businesses, whereas businesses consisting wholly or mainly of making or holding investments, such as many buy-to-let property businesses, will not qualify. Whether a business qualifies depends on its activities and advice should be sought where there is any doubt.
Since 6 April 2026, that position has changed fundamentally. The 100% rate of Business Property Relief and Agricultural Property Relief now applies only to the first £2.5 million of combined qualifying business and agricultural assets per individual. Any qualifying value above that threshold receives relief at 50%, resulting in an effective inheritance tax rate of 20% on the excess. Certain AIM-listed shares that previously benefited from 100% relief now attract relief at 50%.
For the owner of a successful trading company, the figures can still be significant. A qualifying shareholding worth £5 million that would previously have passed entirely free of inheritance tax could now generate an inheritance tax liability of £500,000. Although inheritance tax attributable to qualifying business or agricultural property can generally be paid by annual instalments over ten years, the liability still needs to be funded. For many family businesses, that may mean borrowing, extracting profits at further tax cost or, in some cases, selling assets the family had intended to retain.
The allowance you should not overlook
A key feature of the new rules is the introduction of the £2.5 million allowance for qualifying Business Property Relief and Agricultural Property Relief. Unlike the original proposals announced by the Government, any unused allowance can now be transferred to a surviving spouse or civil partner, meaning that many married couples may be able to benefit from up to £5 million of qualifying assets passing with 100% relief.
Whilst this is a welcome change, it does not remove the need to review your existing estate planning. Wills should still be considered alongside the new rules to ensure they remain appropriate, particularly where they incorporate trusts or succession planning arrangements that were drafted under the previous regime. Business owners should also review the ownership of their business interests, succession plans and wider estate to ensure the available reliefs are maximised and continue to operate as intended.
Pensions join the estate from April 2027
The second major change is due to take effect from April 2027, when most unused defined contribution pension funds and lump sum death benefits will count towards the value of an estate for inheritance tax purposes for the first time. For years the standard planning advice was to spend other assets first and preserve the pension, precisely because it sat outside the inheritance tax net and could pass to children comparatively efficiently. That strategy now needs rethinking from first principles. Pension wealth will sit on top of property, business value and savings when the estate is assessed, pushing many estates over thresholds and, for larger estates, potentially interacting painfully with income tax when beneficiaries draw the funds. Decisions about drawdown, spending order, death benefit nominations and lifetime giving all deserve fresh attention well before the rules bite.
What else a proper review should cover
Beyond wills and pensions, three areas stand out for business owners. First, check your shareholder or partnership agreement. A binding contract requiring your shares to be bought on death can destroy Business Property Relief altogether, whereas a properly drafted cross option agreement achieves the same commercial outcome while preserving the relief, usually funded by life insurance between the owners.
Second, consider life insurance written in trust as a way of providing your family with the liquidity to meet a tax bill without touching the business, since a policy in trust pays out quickly and outside the estate.
Third, revisit lifetime giving. Gifts made more than seven years before death will generally fall outside the estate for inheritance tax purposes, provided the donor of the gift survives seven years and does not continue to benefit from the gifted asset. With the relief cap now in place, passing business value to the next generation earlier, in a controlled and documented way, has become significantly more attractive, though capital gains tax and loss of control both need weighing carefully. Trusts created at different times are also treated differently under transitional rules, so existing trust arrangements should be reviewed rather than assumed to work as originally intended.
Plan with Rowlinsons
None of this is a reason for alarm, but all of it is a reason for a proper review. Our award winning Wills, Trusts and Estate Planning team advises business owners, professionals and families across Cheshire, working alongside your accountant and financial adviser so that the legal, tax and financial pieces fit together as one plan. Recognised at the British Wills and Probate Awards and the National Law Society Excellence Awards, the team combines technical depth with plain speaking advice. If your will, shareholder agreement or wider estate plan predates these changes, contact our team on 01928 735 333 to arrange a review.