Inheritance Tax Is Changing: What the Finance Bill 2026 Could Mean for You (Announced: 21 July 2025)

The UK government has now published draft legislation and policy papers for the upcoming Finance Bill 2025–26, including substantial proposed reforms affecting private client law and inheritance tax (IHT) planning.

Two headline policy changes are worth noting:

1. Reforming Inheritance Tax – Unused Pension Funds and Death Benefits

This policy proposes changes to the IHT treatment of unused pension pots and lump-sum death benefits. It may impact the extent to which these are considered outside the taxable estate, particularly for individuals dying after age 75 or where benefits are paid to discretionary trusts.

Read more here:

https://www.gov.uk/government/publications/reforming-inheritance-tax-unused-pension-funds-and-death-benefits

2. Reforms to Agricultural Property Relief (APR) and Business Property Relief (BPR)

The proposed changes aim to restrict these reliefs to UK-based and actively trading businesses. This may exclude:

• Passive or investment-type holdings

• Furnished holiday lets

• Overseas assets or corporate structures not engaged in active trade

View the full policy document here:

https://www.gov.uk/government/publications/reforms-to-agricultural-property-relief-and-business-property-relief

3. Finance Bill 2025–26 Draft Legislation

All draft clauses and supporting material are available on the government website:

https://www.gov.uk/government/collections/finance-bill-2025-26

These proposed reforms represent a potentially significant shift in the inheritance tax landscape, particularly for those with pension wealth, family-owned businesses, or agricultural property interests. Individuals and trustees with existing estate planning arrangements may wish to reflect on whether these changes could impact the continued availability of key reliefs. Taking steps to ensure that existing structures remain aligned with the evolving legislative framework will be important in preserving intended outcomes.

For those interested in reviewing the full detail, the government has published explanatory notes and draft legislation, which can be accessed here:

• Reforming Inheritance Tax – unused pension funds and death benefits (21 July 2025)

• Reforms to Agricultural Property Relief and Business Property Relief (21 July 2025)

• Finance Bill 2025–26: Full Collection of Draft Legislation and Notes

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