Inheritance tax freeze extended to 2031 – key relief changes and exemptions confirmed

The Inheritance Tax (IHT) nil rate band has remained at £325,000 since 2009, and in this week’s Budget, the Chancellor confirmed it will stay frozen until April 2031. That means the threshold will have been fixed for 22 years, pulling more estates into the IHT net as property and asset values rise.

The £175,000 ‘residential nil rate band’ is still available when property is left to direct descendants. Combined with the standard nil rate band, a married couple may be able to pass on up to £1 million free of IHT (£325,000 + £175,000 from each parent). However, the rules are complex, and the extended freeze makes proactive planning essential.

Why this matters

Holding the threshold at the same level for another five years will increase many clients’ exposure to IHT and reduce the value of estates passed to loved ones. With property prices continuing to climb, more families will be affected.

IHT relief changes confirmed – what you need to know

You may recall that last year’s Budget announced significant changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) from April 2026. Today, the Chancellor confirmed those changes will go ahead as planned.

What’s changing?

Currently, APR and BPR can provide a 100% deduction from the value of qualifying assets. From 6 April 2026, this will change:

• Combined allowance – The first £1 million of agricultural and business property in an estate will still qualify for 100% relief.
• Above £1 million – Relief will be restricted to 50% on any value above that threshold.
• Spouse transferability – In a welcome update, the £1 million allowance will be transferable between spouses, helping couples plan more effectively.

Impact on AIM shares

Shares not listed on a recognised stock exchange, such as AIM, currently qualify for 100% relief after two years (if the company is a qualifying trading business). From 6 April 2026, this relief will be restricted to 50% of the total value, regardless of the total value.

Other key points

• Transitional provisions are already in place that restrict the lifetime gifting of APR and BPR assets.
• Compensation payments from the Infected Blood Scandal will be exempt from Inheritance Tax – a welcome clarification.

Why this matters

These changes could significantly increase the IHT liability for estates holding agricultural land, business assets, or AIM shares. Planning ahead is essential to avoid unexpected tax exposure and ensure your Will and trust arrangements remain effective.

What you can do now

• Review your estate – If you hold agricultural or business assets outright or in trust, speak to Greenwoods’ Private Wealth team. Your Wills may need updating, and trust assets should be reviewed before the next 10-year anniversary charge.
• Plan lifetime gifts carefully – If you are considering gifting APR or BPR assets, seek advice well in advance to navigate transitional rules and optimise relief.

Our Private Wealth team at Greenwoods can help you review your IHT planning and ensure your Will reflects your wishes, and make the most of available reliefs and exemptions.