BPR & APR Reform April 2026: £1m Cap, 50% Above

QWhen do the BPR and APR changes take effect?

6 April 2026 for the combined £1m cap and the 50% relief on the slice above. AIM-listed shares move to 50% relief from the same date. The Environmental Land Management (ELM) extension to APR took effect from 6 April 2025 as a parallel measure. All changes were announced at the Autumn Budget 2024 (30 October 2024) and confirmed at Spring Statement 2025 and Autumn Budget 2025 without further amendment. The transition has no grandfather period - the new regime applies to all chargeable events (deaths, lifetime chargeable transfers, 10-year periodic charges) occurring on or after 6 April 2026 regardless of when the underlying assets were acquired or the business was established.

QWhat is the £1m combined cap exactly?

A single £1m cap per individual on the 100% rate of Business Property Relief and Agricultural Property Relief combined. The cap is calculated on the value of the qualifying asset (not the IHT due). An individual with £700,000 of agricultural property (APR-eligible) and £500,000 of unlisted trading company shares (BR-eligible) has £1.2m of relief-eligible assets - £1m attracts 100% relief, the £200,000 above the cap attracts 50% relief. The 50% on the excess gives effective IHT of 40% × 50% = 20% on that slice (£40,000 in this example). The cap is per individual and is NOT transferable between spouses. A married couple jointly holds £2m of cap headroom (£1m each) but it cannot be combined into a single £2m cap for one spouse death.

QHow does this affect AIM-listed share portfolios?

AIM-listed shares previously enjoyed 100% Business Property Relief regardless of value, making AIM portfolios a key IHT planning vehicle for higher-net-worth investors who could hold qualifying shares for the 2-year required period and pass them down free of IHT on death. From 6 April 2026 AIM-listed shares move to a flat 50% relief regardless of value - applying separately from and not eligible to use the new £1m cap that covers the 100% relief on private business and farm assets. An AIM portfolio of £500,000 now effectively faces 20% IHT rate (40% × 50% relief = 20%) on the entire value. The change has driven significant rebalancing in the AIM IHT-portfolio industry, with managed AIM IHT funds typically reporting 15% to 30% reductions in assets under management as investors restructure into other IHT-planning vehicles.

QWhat does the change mean for family farms?

Family farms with agricultural value above £1m per individual now face IHT on the slice above the cap at the effective 20% rate (50% APR relief above the cap, multiplied by the 40% IHT rate). A typical 200-acre arable farm in the East of England with agricultural value of £3m (£15,000 per acre) held in one ownership now faces an effective IHT of £400,000 on the £2m above the cap - up from zero under the pre-2026 unlimited APR regime. The £2m above the cap is £1m × 50% × 40% = £200,000 plus the £1m × 50% × 40% = £200,000 from the second slice... wait, more precisely: £2m above cap × 50% relief = £1m relief; the remaining £1m taxable × 40% = £400,000 IHT. For larger family farms (£5m to £15m of agricultural value) the IHT exposure runs from £800,000 to £2.8m per individual death event, which is materially larger than most family farms can absorb without selling agricultural land. The political controversy around the policy has been substantial and the NFU has campaigned for partial reversal or threshold increase.

QCan spouses combine their £1m caps?

No - the cap is per individual and is not transferable between spouses. A married couple jointly holding £2m of agricultural property could not combine their two £1m caps into a single £2m cap on one death. Each spouse claims their own £1m cap on their own death event. The standard spouse-exemption mechanism does still operate: assets passing to a UK-resident spouse on death are exempt from IHT regardless of BPR/APR status. So a £3m farm jointly held passes to the surviving spouse spouse-exemptly on first death, then on second death the £1m cap applies to the £3m value with the same £400,000 effective IHT computed above. The non-transferability of the cap is the most-criticised single feature of the reform and is the technical reason joint farm ownership and family-business succession planning is being substantially restructured.

QWhat planning options are available to mitigate?

Five main strategies. (1) Lifetime gifting (PETs) - shares or farm assets gifted more than 7 years before death fall entirely outside the estate; the 7-year clock starts at the gift date. (2) Use of the spouse-exemption to delay first-death IHT, with planning to use the deceased spouse cap at second death via the residence-nil-rate-band-style "transferable cap" mechanism (note: this mechanism was excluded from the draft legislation and so is NOT available). (3) Family trust structuring - a discretionary trust holding qualifying business assets receives the same £1m cap as an individual, allowing assets to grow inside the trust at the post-reform rate with the cap available on the trust periodic-charge event every 10 years. (4) Family Investment Companies (FIC) - holding investment wealth in a FIC outside the BPR scope (because FICs are not trading companies) avoids the new regime entirely for non-business-asset portfolios. (5) Pension preservation - the 6 April 2027 pension inclusion measure means accumulated pension pots remain in the IHT-exempt zone until 5 April 2027, providing a transitional planning window. The optimal mix depends on the specific family structure, the character of the assets, and the family liquidity profile.

QHow does this interact with the 7-year gift rule?

Lifetime gifts of BPR/APR qualifying assets are Potentially Exempt Transfers (PETs) with the standard 7-year IHT clock. If the donor survives 7 years the gift falls entirely outside the estate regardless of the value (no cap applies to PETs that have cleared the clock). If the donor dies within 7 years the gift becomes chargeable - and crucially the £1m cap is applied at the date of death using the value at the gift date. This creates a planning trap: a £3m farm gifted in 2026 and the donor dies in 2030 (year 4) brings the £3m gift value back into the estate calculation. The £1m cap is applied to the gifted value (so £1m × 100% relief, £2m × 50% relief, taxable £1m) and tapered relief applies on the £400,000 tax due (40% at year 4 = £240,000 actual tax). The post-7-year survival route is therefore the cleanest planning option and is driving substantial family-business owner gifting through 2025-2026 ahead of the reform.

QWhat happens to BPR-qualifying portfolios held inside trusts?

Discretionary trusts (relevant property trusts) holding BPR-qualifying assets receive the same £1m cap as individuals - the cap is applied per trust at each 10-year periodic charge event and each exit charge. A trust holding £3m of BPR-qualifying private company shares at the 10-year periodic charge event computes the periodic charge as 6% of the value above the Nil Rate Band (£325,000) after BPR. Post-reform: £1m × 100% BR + £2m × 50% BR = £2m of relief; trust assets net £1m which is above the £325,000 NRB by £675,000; 6% periodic charge of £40,500. Pre-reform: 100% BR on full £3m = no taxable trust assets, no periodic charge. The trust structure remains useful for inter-generational succession but loses much of its pre-reform IHT efficiency for assets above £1m.

QHow is the £1m cap allocated across mixed assets?

The taxpayer can allocate the £1m cap to whichever combination of BR/APR assets is most valuable. A taxpayer with £1.5m of agricultural property (APR at 100% pre-reform) and £800,000 of AIM-listed shares (no longer eligible for the cap, separate flat 50% rate) would allocate the entire £1m cap to the agricultural property (the higher-value-per-pound asset under the new regime). The £500,000 of agricultural property above the cap then gets 50% APR. The £800,000 of AIM shares are entirely outside the cap and get the flat 50% relief regardless of the cap allocation. The allocation is made on the executor return after death and should be optimised against the specific value of each asset class at the death date. Where multiple classes are at the same effective relief rate post-cap (e.g. all 50%), allocation does not matter and the cap is applied automatically by HMRC.

QHow does this affect family-business succession planning?

Substantially. Pre-reform, family trading businesses up to any value could pass at death entirely IHT-free, making lifetime gifting unnecessary for most owners. Post-reform, business owners need to plan around the £1m cap. The standard post-reform succession routes are: (1) phased lifetime gifting in the 7-year-pre-retirement window to bring family-business value out of the estate through PETs; (2) discretionary trust structuring to hold business assets at a controlled distribution rate; (3) Family Investment Company restructuring for investment-wealth components of the family balance sheet; (4) life assurance gift trust arrangements to fund the post-cap IHT liability without selling business assets. Specialist tax counsel is essentially mandatory for any family business with value above £2m to £3m - the structural restructuring required is significant.

QWill the policy be reversed or amended?

Political risk exists but a full reversal looks unlikely. The Conservative opposition has criticised the policy but has not committed to immediate reversal if elected - the OBR-scored revenue (around £550m / year by 2029/30) creates a structural fiscal hole that any reversing government would need to fund. Realistic political scenarios are: (1) threshold raise from £1m to £2m or £3m, which has been advocated by the NFU and CLA and is the most-likely partial reversal; (2) restored AIM 100% BR with smaller threshold cap - the AIM industry has lobbied for this change; (3) spousal-transferable cap mechanism added to mirror the residence-nil-rate-band logic - this would substantially reduce the impact on family farms held in joint ownership. The structural reform - 50% relief above the cap rather than 100% - is unlikely to be fully reversed because of the OBR fiscal scoring. Planning advice is to assume the £1m cap is the durable medium-term position.

QHow does this interact with the pension IHT inclusion from April 2027?

The two measures are independent but both bite on the same family-wealth balance sheets. From 6 April 2027 (announced Autumn Budget 2024) unused defined-contribution pension pots are brought into the IHT estate, ending the previous tax-free pass-through to nominated beneficiaries. A family with £800,000 of unlisted trading-company shares (under-cap), £400,000 AIM portfolio (50% relief = effective 20% IHT), and £700,000 of unused DC pension (post-2027 in estate) faces meaningfully different IHT exposure post-2027 vs the pre-2025 baseline. Pension drawdown strategies are being substantially restructured to spend pension wealth in the 2025-2027 window rather than preserve it for IHT-exempt onward transfer. See our pension drawdown calculator for the cash-flow modelling on these decisions.