IHT reform: key changes and opportunities for pensions

Farmers were handed a very welcome, albeit unanticipated, Christmas present from HM Treasury on 23 December 2025.

The Treasury press release stated that, from 6 April 2026, the Government would increase the Agricultural Property Relief (APR) and Business Property Relief (BPR) thresholds from £1m to £2.5m per individual; thereby enabling couples to pass on up to £5m in qualifying business or agricultural assets free of Inheritance Tax (IHT), when assets qualify. 

Why this matters

According to the Treasury, the change significantly reduces the number of estates impacted by the reforms, with around 85% of estates claiming APR now expected to pay no additional IHT. Estates claiming only BPR (excluding AIM shares) will also see a one-third reduction in those affected.

For Advisers and Paraplanners, this change in legislation provides several benefits: 

• It materially improves succession planning flexibility; 
• reduces pressure for pre-emptive gifting or restructuring, and 
• limits the need for forced asset sales to meet IHT liabilities.

The rationale for ‘softening’ legislation 

So why did the Government suddenly change their mind? This rethink of proposed legislation follows strong and sustained lobbying from the farming and business communities, following the initial proposals outlined in the 2024 Autumn Budget. No one could have failed to witness hordes of tractors trundling around Whitehall and Westminster over the last 14 months, protesting against the proposed imposition of IHT.

The Government now says it has “listened” to those protesting, and acted to protect “ordinary family farms”, while maintaining fairness for larger estates.

The changes announced before Christmas will be enacted via amendments to the relevant Clause and Schedule within the Finance (No.2) Bill 2024-26 (“the Bill”), which was first introduced into Parliament last month.

IHT on unused pension funds 

Also included in the Bill are the clauses relating to the planned imposition of IHT on unused pension funds and death benefits, with effect from April 2027.

The ‘partial backtracking’ of IHT on APR and BPR – which is not the first time that the current Government have relented to sustained protests and criticism, (e.g. the Winter Fuel Allowance and proposed welfare and benefits changes) – offers the pensions industry an opportunity to persuade MPs to ‘think again’, regarding the near-universal criticism and unpopularity of the proposed IHT on pensions proposals.

A window of opportunity 

Yes – we may not have tractors and muck-spreaders readily to hand to drive around Parliament Square – but we do have the power of the pen. Coupled with our expertise of financial planning and wealth management, this allows us to put forward our case as to why the proposed rules will unnecessarily delay the prompt payment of pension death benefits and prove hugely unpopular with MPs’ constituents, ahead of the next General Election.

The most crucial point: The ‘Committee stage’

Now that MPs have returned to Parliament following their Christmas recess, the Bill is about to enter its most critical stage in its passage towards becoming an Act - the ‘Committee Stage’.

For this stage, a cross-party group of around a dozen MPs read through and discuss the Bill line-by-line, suggesting and agreeing any amendments along the way. Done properly, this is a painstaking process and, given that the Bill currently runs to over 550 pages, is likely to take several meetings to plough through it all.

For the pensions industry, the key clauses are 63-68 inclusive. At the time of writing, the UK Parliament website states, ‘date to be announced’ for the Committee stage of the Bill.

Making your voice heard

Time is currently on our side, therefore there is still an opportunity to email or write to your local MP to outline why the IHT on pensions rules will only cause confusion, distress, and worst of all, delays in the actual payment of death benefits to surviving (and potentially vulnerable) beneficiaries.

Alternatively, it is also possible to write to the actual Committee appointed to undertake the Committee stage of the Bill and, provided this is received before clauses 63-68 are discussed, all external correspondence and representations are considered, as part of their deliberations over what is being proposed.

Pleasingly, until a Bill receives Royal Assent and becomes an Act, it can be amended as many times as required.

A ‘tractors in Whitehall’ moment for pensions

The ‘Christmas present’ delivered to the Agricultural community and other business owners demonstrated once again that our current Government is prepared to amend their proposed policies in the face of sustained protests and criticism.

The forthcoming Committee stage of the Finance (No.2) Bill provides the pensions industry with its own ‘tractors in Whitehall’ moment, in voicing our opposition to the forthcoming IHT on Pensions legislation.