HMRC’s recently closed consultation offers further clarity on how the new £1 million inheritance tax (IHT) relief cap for business and agricultural property will apply from 6 April 2026.
What’s changing?
From this date, the total value of business and agricultural property eligible for 100% IHT relief will be capped at £1 million per individual.
Any qualifying assets above this threshold will only benefit from 50% relief.
Example:
For an entrepreneur with a business valued at £5 million, the new threshold could result in an additional IHT liability of £800,000.
Understanding the relief
The new £1 million allowance applies to lifetime transfers made within seven years of death. Key points include:
The allowance will renew every seven years, on a rolling basis — similar to the £325,000 nil-rate band.
Assets qualifying for only 50% relief, such as Alternative Investment Market (AIM) shares, will not reduce the £1 million cap.
Although spouses and civil partners will each be entitled to their own £1 million allowance, any unused portion cannot be transferred, unlike the nil-rate band.
Planning considerations
Currently, with unlimited 100% relief, IHT planning typically focuses on qualifying assets for relief.
Looking ahead, the new cap will bring about additional planning considerations:
Making lifetime gifts will become more attractive when the £1 million allowance does not fully cover the value of qualifying assets. However, capital gains tax (CGT) implications must also be taken into account.
Placing assets into trust may offer tax planning advantages. For example, a £2 million gift of agricultural property into trust would generate a lifetime IHT charge of £35,000.
When transferring business or agricultural property to a spouse or civil partner, the property must be held for at least two years before IHT relief becomes available.
Further guidance
Annex A of HMRC’s consultation includes six case studies that illustrate how the £1 million allowance could apply in various scenarios.
You can read the full consultation document here.