Inheritance tax changed in April 2026: the £2.5m relief cap explained (UK)

25 August 2026 · Inherit Vault

For most families, inheritance tax didn't change on 6 April 2026 at all. For anyone leaving a farm, a company or a stack of AIM shares, it changed a lot. And the number nearly everyone half-remembers is the wrong one.

The cap is £2.5 million, not £1 million

The October 2024 Budget said £1 million. That's still the figure doing the rounds. It was raised to £2.5 million in December 2025, before the rules ever took effect. So for deaths on or after 6 April 2026, qualifying agricultural and business property gets 100% relief up to £2.5 million per person. Above that, relief drops to 50%. That works out as an effective 20% inheritance tax rate on the excess. Not free, but not the full 40% either.

It transfers between spouses, if someone claims it

Any unused slice passes to a surviving spouse or civil partner. So a couple can shelter up to £5 million. The catch is that it isn't automatic. Executors have to claim it, within 4 years of the survivor's death or 6 months of taking the role. Where the first spouse died before 6 April 2026, HMRC assumes the full £2.5 million transfers across.

AIM shares just halved

AIM shares were the tidy way to get business relief without running a business. Hold them two years, watch them drop out of the estate. From 6 April 2026 they go from 100% relief to 50%. If a portfolio was built specifically to sit outside the estate, half of it is back inside it.

The gift clock started in October 2024

Gifts of qualifying property made on or after 30 October 2024 count too. Die on or after 6 April 2026, within seven years of the gift, and it eats into the £2.5 million allowance. So gifts made long before these rules existed can still use up the relief. Worth checking whether anything moved in the last couple of years.

What didn't change, and what's coming

The nil-rate band is still £325,000, now frozen until April 2031. The residence nil-rate band is still £175,000. The standard rate is still 40%, or 36% if at least 10% of the net estate goes to charity. And from April 2027 unused pension funds come into the inheritance tax net. That one will catch far more ordinary estates than the relief cap ever will.

None of it helps an executor who doesn't know what's there. The allowance only works if someone can list the company shares, the AIM holdings, the land and the gifts made since 2024. Then hand it over inside the claim window. That's a record-keeping job, not a tax one, and it's far easier done now than by someone else later.

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