Inheritance tax used to be something only the very wealthy worried about. That’s changing. Frozen allowances, rising property values and a series of reforms have steadily brought more families within its reach, and this year saw some of the most significant changes to inheritance tax in a generation.

With a Budget due on 28 October, it’s natural to wonder what might come next. But the most valuable estate planning doesn’t depend on predicting the Chancellor. It depends on understanding the rules as they stand today, and making sure your plans reflect them.

The allowances: frozen, and staying frozen

Everyone has an inheritance tax “nil-rate band”, the amount that can pass free of tax. It’s £325,000, and has been set at that level since April 2009. The November 2025 Budget extended the freeze again, to April 2031.

On top of that, the residence nil-rate band adds up to £175,000 when you leave your main home to children or grandchildren, meaning one person can pass on up to £500,000 tax-free, or £1 million for a married couple. Anything above your available allowances is generally taxed at 40%.

There’s an important catch for larger estates. The residence nil-rate band is reduced by £1 for every £2 by which an estate exceeds £2 million, and that threshold is frozen until April 2031 too. For families whose home, investments and business interests together pass £2 million, this taper can quietly remove the residence allowance altogether.

Because these figures have been frozen for so long while property and investment values have risen, more and more Lancashire families are finding themselves over the line without ever thinking of themselves as wealthy.

The big change: farms and family businesses

For decades, Agricultural Property Relief (APR) and Business Property Relief (BPR) meant that qualifying farms and family businesses could usually pass to the next generation free of inheritance tax, with no upper limit. That changed on 6 April 2026.

From that date, 100% relief applies only up to a £2.5 million allowance covering qualifying agricultural and business property combined, with anything above receiving 50% relief, an effective tax rate of 20% on the excess. Unused allowance can be passed to a surviving spouse or civil partner, so a couple can potentially shelter up to £5 million of qualifying assets at the full rate.

Two further points are worth knowing. The allowance will rise in line with inflation from April 2031 and refreshes every seven years. And families facing a bill can now pay it in ten interest-free annual instalments on all APR and BPR-qualifying assets, which can make the difference between keeping a farm or business and having to sell part of it.

It’s also worth watching the Budget closely on this point. The Prime Minister has said he’s willing to look again at the restriction of agricultural property relief for farmers. That’s a signal, not a commitment, so plans should be based on the rules as they stand.

An illustration: a Lancashire farming family

This is a simplified, hypothetical example.

Consider a married couple farming in the Ribble Valley. Their land, buildings and business assets qualify for APR and BPR and are worth £7 million in total, owned jointly.

Under the old rules, the farm could have passed to their children with no inheritance tax at all. Under the new rules, with both spouses’ £2.5 million allowances used in full, £5 million qualifies for 100% relief. The remaining £2 million receives 50% relief, leaving £1 million taxable at 40%: a potential bill of around £400,000, before any other allowances or reliefs.

Paid over ten years, that’s around £40,000 a year, a significant sum for a business whose wealth is tied up in land rather than cash. And there’s a further subtlety: APR generally only covers the agricultural value of land and property, so a farmhouse or land with development potential may not be fully relieved.

For families like this, the questions are practical ones. How would the bill be funded? Should some assets be passed on during their lifetimes? Would life insurance written in trust provide a more affordable way to cover the liability? Are their wills structured to make the most of both allowances? These are exactly the conversations to have now, not after a death.

Pensions: the next change is already on the way

The picture changes again next year. From 6 April 2027, most unused pension funds and pension death benefits will be brought into the estate for inheritance tax purposes. For many families, a pension has been the most tax-efficient asset to pass on. Soon, it may push an estate over the thresholds, or into the residence nil-rate band taper, for the first time. Checking your pension beneficiary nominations and how your pension fits your wider estate plan is an important step this year.

Gifting: the most practical tool you have

Giving during your lifetime remains one of the simplest and most effective ways to reduce a future inheritance tax bill, and many gifts are free of tax immediately.

The annual exemption. You can give away up to £3,000 each tax year free of inheritance tax, and if you didn’t use last year’s allowance, you can carry it forward for one year. A couple can therefore potentially give £12,000 in a single year.

Small gifts and wedding gifts. You can also give up to £250 per person per year as small gifts, and wedding gifts of up to £5,000 to a child, £2,500 to a grandchild or £1,000 to anyone else.

Gifts from surplus income. This is often overlooked, and for higher-income families it can be the most powerful exemption of all. Regular gifts made from your income, rather than your capital, can be exempt without limit, provided they don’t reduce your standard of living. Paying into a grandchild’s savings or covering school fees from surplus income can qualify, but good records are essential.

The seven-year rule. Larger gifts to individuals are usually “potentially exempt”: if you survive seven years, they fall outside your estate entirely. If you die within seven years, they may be taxed, although taper relief can reduce the tax on gifts made more than three years before death. The key is starting early.

One important caution for business-owning and farming families: gifts of business or agricultural assets made on or after 30 October 2024 may reduce the relief allowance available on death if the giver dies on or after 6 April 2026. Gifting business assets is still possible and often sensible, but it needs careful planning.

What about the Budget?

There’s always speculation before a Budget, and this year is no exception. Some rumours have already been dismissed: the government has said it has no plans for a flat 10% inheritance tax on all estates. Others, such as ending the capital gains tax “uplift on death”, remain in circulation.

Our advice is the same as always. Don’t rush into decisions based on headlines. Tax changes normally apply from announcement or the following April, and Budgets sometimes include rules designed to catch transactions rushed through in anticipation. The better approach is to have your plan in good shape now, so you can respond quickly and calmly once the details are known.

Start the conversation

The Money and Pensions Service’s Talk Money Week runs from 2 to 6 November, and this year’s theme is “It All Counts”. Estate planning is one of the money conversations families most often avoid, yet it’s one of the most important. Talking openly with your family about your wishes, what you own and what your plans are can prevent confusion, conflict and unnecessary tax later.

Your next step

If you’d like a clearer picture of your family’s position, we’d be glad to help. Book a family wealth and estate planning review with Questa and our chartered team will look at your estate as a whole, including your home, investments, pensions and any business or agricultural assets, and explain your options in plain English.

We’re particularly keen to hear from business-owning and farming families across Lancashire affected by this year’s APR and BPR changes. There’s no obligation, and the most important step is simply the first conversation.

This article is for general information only and does not constitute financial, tax or legal advice. Inheritance tax rules are complex and their effect depends on individual circumstances. Figures correct as of September 2026.