In this blog Emily Deane TEP, Technical Counsel & Head of Government Affairs at STEP, discusses the changes announced in the UK Budget and the impact of STEP’s recommendations on key issues.

The UK Budget has delivered some significant developments for the inheritance tax (IHT) regime with measures to be legislated in the Finance Bill 2025–26. These reforms will affect individuals, families, trustees and personal representatives with changes to pension funds from April 2027 and changes to agricultural and business property reliefs from April 2026.

Several of these changes reflect recommendations that STEP has consistently called for in recent consultations and direct meetings with HMRC, particularly around fairness, simplification and the need to reduce administrative burdens on estates.

Transferable allowance for agricultural and business property reliefs

From 6 April 2026, the government will allow the transfer of the 100% relief allowance between spouses and civil partners on agricultural property relief (APR) and business property relief (BPR).

Each individual will have a GBP1 million allowance under the 100% rate for APR and BPR and under the new rules, any unused portion of these allowances will be transferable between spouses and civil partners.

Crucially, the transferability will apply retrospectively, meaning it can be used even where the first spouse or civil partner died before 6 April 2026. This adds valuable flexibility and could reduce IHT exposure for many estates, particularly those involving farms and family businesses with complex ownership structures.

STEP welcomes this concession to the original proposals, which we have been calling for so that businesses and farms can continue to run smoothly during estate administration.

IHT treatment of unused pension funds and death benefits

From 6 April 2027, two important changes will take effect that will support personal representatives (PRs) when dealing with pension-related IHT liabilities.

• New power for PRs to instruct pension scheme administrators to withhold funds

PRs will be able to instruct administrators to withhold up to 50% of taxable pension benefits for up to 15 months. This is designed to ensure that IHT can be properly accounted for where benefits are taxable but difficult to access in time to meet payment deadlines. This has been a major area of concern among STEP members. They frequently report that PRs face cash-flow problems caused by pension schemes paying out before IHT is settled. STEP has highlighted this issue repeatedly to HMRC, so this measure is a welcome response.

• Discharge from liability for newly discovered pension funds

PRs will be released from IHT liability in cases where additional pension funds come to light after HMRC has already issued clearance. STEP has been urging the government to make this provision, which provides much-needed protection for PRs who would otherwise face the risk of unexpected tax bills on assets they were not aware of at the time clearance was obtained.

STEP believes that PRs should not bear ongoing and unpredictable liability for information they cannot reasonably be expected to have and these changes are very welcome.

Looking ahead

STEP will continue to engage actively with HMRC and HM Treasury as the legislation for these measures is developed. While the announcements represent progress in areas where STEP has been advocating for reform, further detail is still required.

We will update members with further guidance and analysis as draft legislation becomes available. In the meantime, members should consider how these developments may affect existing and future arrangements.

Emily Deane TEP, Technical Counsel & Head of Government Affairs at STEP