The inheritance tax overhaul that began with Rachel Reeves’ first Budget in October 2024 is now law. This is what changed, who is affected, what the government conceded after sustained backlash, and why a Divisional Court is still deciding whether the process was ever lawful.
On 6 April 2026, the most significant changes to UK inheritance tax in a generation came into force. Family farms and businesses now face a charge they had been exempt from for 33 years. Pension savers have eleven months before their retirement savings enter the inheritance tax net. And a panel of senior judges is sitting on a reserved judgment, weighing whether the government acted lawfully at all.
Inheritance tax receipts are at a record £8.5 billion. They are projected to reach £14.3 billion by 2029-30. Rachel Reeves said before the election she had no plans to change any of this.
Table of Contents
What Changed in the October 2024 Budget
Reeves announced four simultaneous changes to the inheritance tax regime in her first Budget on 30 October 2024.
Pensions brought into the IHT net. From April 2027, unused defined contribution pension pots will form part of a deceased’s taxable estate and face the standard 40% inheritance tax charge. The Treasury estimates this will raise £1.5 billion a year by 2030 and pull an extra 10,500 estates into the IHT net in 2027-28 alone. Pension wealth had sat entirely outside the scope of inheritance tax for decades.
Agricultural and Business Property Relief capped. Farms and qualifying businesses had been fully exempt from inheritance tax under Agricultural Property Relief and Business Property Relief since 1992. Reeves capped that relief at £1 million of combined assets, with anything above that threshold taxed at an effective rate of 20%. The Office for Budget Responsibility rated the cost estimate of this measure as carrying “high” uncertainty, with the data behind it described as incomplete and disputed.
The nil-rate band freeze extended to 2030. The main inheritance tax threshold has been fixed at £325,000 since 2009. It was due to lift in 2028. Reeves pushed that back to 2030. Had it risen with inflation, it would have reached £555,000 by 2029-30. Instead, rising house prices are drawing more estates across the threshold every year without any formal rate change.
AIM share relief halved. Investments in AIM-listed companies had qualified for 100% inheritance tax exemption after two years of ownership. That relief was cut to 50%, setting an effective IHT rate of 20% on those holdings.
Together, the Office for Budget Responsibility projected these four measures would add £2.5 billion to death duty receipts by 2029-30.
What Labour Promised Before the 2024 Election
Before the general election, Reeves said publicly she had “no plans” to change inheritance tax. Labour’s manifesto mentioned the levy only once, in the narrow context of stopping the use of offshore trusts to avoid it. Steve Reed, then shadow environment secretary, told farming groups directly that Labour had no intention of touching Agricultural Property Relief.
Within four months of winning power, all three positions had changed.
The only prior signal came in 2021, when Reeves, then shadow chancellor, said she would look at “every single tax break.” That remark drew limited attention at the time.
The Farm Tax: The Government Said 500 Estates. Farmers Said Thousands.
No part of the inheritance tax package produced a more direct clash than the question of how many farms would actually be hit.
The government put the figure at around 500 farm estates a year, drawn from HMRC Agricultural Property Relief claims data from 2021-22 and endorsed by the Office for Budget Responsibility.
The National Farmers Union commissioned its own analysis, working with former Treasury and Office for Budget Responsibility economists. Their finding: 75% of commercial family farms would fall above the £1 million threshold. The reason for the gap, they argued, was that the government’s dataset excluded Business Property Relief assets, used land prices from 2021-22 that no longer reflect current values, and failed to account for farms held across multiple owners. The Country Land and Business Association independently estimated 35% of farms would be caught.
“Just because a farm is a valuable asset, it doesn’t mean those who work it are wealthy.” Tom Bradshaw, NFU president
An economic study commissioned by the NFU and 30 trade associations, conducted by CBI-Economics across more than 4,000 farms and businesses, added concrete numbers:
- 49% of family farms had paused or cancelled planned investments since the Budget
- 1 in 10 had already downsized farming operations before the changes took effect
- The projected economic hit included more than 200,000 jobs and a net fiscal loss to the government of £1.9 billion, more than the measure was designed to raise
Environment Secretary Steve Reed defended the original policy, saying Agricultural Property Relief had become “the most effective way for the super rich to avoid paying their inheritance tax.”
Farmers in Westminster — and Then in Court
In November 2024, 1,800 farmers entered Parliament and lobbied MPs directly across Westminster. Jeremy Clarkson addressed demonstrators outside, calling the changes “a hammer blow to the back of the head” of British agriculture.
Farmers returned to Whitehall on Budget Day in November 2025. Tractors appeared despite a Metropolitan Police ban on agricultural machinery in the area.
The next step was legal. On 23 June 2025, law firm Collyer Bristow, acting for advisory firm Alvarez and Marsal, served judicial review proceedings on the Chancellor and HMRC on behalf of claimants Tom Martin, his father George Martin, and the campaign group Farmers and Businesses for Fair Tax Relief.
The claim centred on a single argument: that the government had acted unlawfully by failing to conduct a proper public consultation before introducing the changes. The government’s own Tax Consultation Framework, in place since 2011, commits ministers to formal consultation before major tax changes. The claimants argued that did not happen.
The case was heard on 17 and 18 March 2026 at the Royal Courts of Justice in London. Rather than a single High Court judge, the case was assigned to a Divisional Court, a panel of senior judges, reflecting its constitutional significance. Divisional Courts are convened for matters of the highest public importance.
“I should be on the farm today planting barley or spreading fertiliser, but instead we’re at the High Court asking the court to declare that the chancellor’s decision not to consult properly on inheritance tax changes was unlawful.” Tom Martin, lead claimant, 17 March 2026
The claimants are not asking the court to overturn the Finance Act 2026. They are asking for a formal declaration that the consultation process itself was unlawful. Such a ruling would not reverse the law, but would place significant political and legal pressure on the government and could set a precedent for how future tax changes are developed before they reach Parliament.
As of 10 May 2026, no judgment has been handed down.
The Pension Change: Already Producing Problems Before It Lands
The pension measure does not take effect until April 2027, but it has already required significant revision in how it will be administered.
The Treasury’s original plan required pension providers to calculate and pay any inheritance tax due on inherited pension assets directly to HMRC. That plan was abandoned following what the government described as “overwhelming feedback” from the pensions industry that it was unworkable.
The House of Lords economic affairs committee then called on ministers to extend the payment window from six months to twelve months. The committee warned that sudden bereavements leave executors scrambling to locate multiple pension schemes across different providers, raising a real risk of late payment penalties at an already difficult time.
A separate House of Lords report, containing 136 recommendations across the full scope of the inheritance tax reforms, found the repeated revisions to the policy “reflects underlying problems with the Government’s approach to tax policy making, in particular in relation to its approach to consultation.”
The Government Retreated Four Times
Between the October 2024 Budget and the Finance Act 2026 receiving Royal Assent, the government made four partial amendments to the farm and business relief proposals.
The two most significant came in the final weeks before the law took effect:
In November 2025, during her second Autumn Budget, Reeves confirmed the £1 million allowance would become transferable between spouses and civil partners, a change that followed sustained pressure from the farming and legal sectors.
On 23 December 2025, the Treasury went further, raising the threshold from £1 million to £2.5 million per person — or £5 million for married couples and civil partners. Any remaining inheritance tax liability can be paid in interest-free instalments over ten years. NFU president Tom Bradshaw welcomed the revised threshold as “a huge relief for many.” Legal and farming groups said it did not resolve all the concerns raised over the previous twelve months.
The Finance Act 2026 encoded these changes. The revised rules came into force on 6 April 2026 under section 65 and schedule 12 of the Act.
The Gifting Cap: Not in Either Budget, Not Ruled Out
One proposed change has not appeared in either Budget: a lifetime cap on tax-free gifts.
Under current inheritance tax rules, any gift made more than seven years before the donor dies is fully exempt from IHT. The taper relief system reduces the charge on gifts made between three and seven years before death, from 32% down to 8% on a sliding scale. Treasury officials were reviewing both that seven-year rule and the taper relief system in August 2025. A government source told reporters at the time: “With so much wealth stored in assets like houses that have shot up in value, we have to find ways to better tap into the inheritances of those who can afford to contribute more.”
Analysis by financial advisers Quilter found retirees give around £2,500 a year on average to family members, mostly for living costs and education. David Sturrock, senior research economist at the Institute for Fiscal Studies, warned that Reeves would be “unlikely to raise significant sums from inheritance tax without hitting small gifts made by middle earners.”
The gifting cap did not appear in the November 2025 Budget. It has not been ruled out.
How Much Has the IHT Take Risen?
| Tax Year | IHT Receipts |
|---|---|
| 2023-24 | £8.2 billion |
| 2024-25 | £8.3 billion |
| 2025-26 | £8.5 billion (record) |
| 2029-30 (OBR projection) | £14.3 billion |
The Office for Budget Responsibility calculates that the changes announced since October 2024 will account for 14% of all inheritance tax receipts by 2030-31. Upward pressure on receipts is expected to continue until at least 2031, when current thresholds are due to unfreeze.
HMRC is also tightening enforcement on property valuations. Referrals to the Valuation Office Agency rose 23.5% in the twelve months to September 2025, from 11,845 to 14,631. Laura Walkley, head of private client at TWM Solicitors, said HMRC had visibly shifted towards “questioning figures submitted in IHT returns, rather than accepting them at face value,” with executors who underreport property values potentially facing personal financial liability.
Where Things Stand on 10 May 2026
The law is in force. Receipts are at record levels. A Divisional Court is sitting on a judgment that may define how future governments are permitted to introduce major tax changes.
Pension savers have eleven months before their retirement pots enter the inheritance tax net. If the gifting cap arrives at the next Autumn Budget, Reeves will have rewritten inheritance tax rules three years in a row.
She told the country in 2024 that she had no plans to change any of this. The receipts, the protests, the court case, and the record now say otherwise.
