UK’s attempts to justify IHT changes fail to convince

There is sometimes a sense that statistics cited in support of policy decisions are being used to justify outcomes rather than objectively explain them.

This feels an appropriate introduction to UK Government attempts to justify the unexpected, and repeatedly shifting, changes to the inheritance tax (IHT) treatment of businesses.

The changes have been colloquially christened the “Farmer’s Tax”, although they apply to all businesses, not just farmers. The Government’s justification was given on the basis of value of assets owned, and fairness, with seemingly little consideration about business impact, continuity after an owner’s death, future investment decisions and ongoing employment opportunities for staff.

John McArthur is an expert in tax law

We were initially informed the new proposals would introduce a £1 million allowance and 50 per cent relief for qualifying business assets, although within weeks, across November/December 2025, Ministers reversed decisions. The Government first announced the allowance would now be transferable, and on 23 December 2025, that the allowance would be increased from £1 million to £2.5 million.

According to supporting statistics in Government press releases, around 20% of affected estates will ultimately pay more IHT than before. That sounds reassuring, but what is perhaps less clear is that such reliefs must be claimed. Therefore, all estates which own businesses will have to obtain valuations to prove the value of the business falls within the allowance, or agree the taxable value where it does not. Depending on the nature of the business, this may require complex valuations of property, business assets, value of contracts, goodwill and other intangible assets.

These are specialist and often costly valuations, which must be carried out and paid for before executors can complete an IHT return, or obtain Confirmation. For estates where IHT is payable, agreeing these values can cause significant delay. Executors also remain personally liable for the tax, and although IHT on business assets can be paid over 10 years, they are unlikely to be advised to transfer assets to beneficiaries until they are certain the tax has been paid. How a business owner is expected to operate when they do not yet own the underlying assets is a question the Government may still need to address, along with providing statistics on the additional costs these requirements will create.

The Government accepts, with careful planning, an individual’s IHT liability can be reduced, typically through gifting or trusts, provided the individual survives seven years. However, this diverts attention from a business’s main aim of creating employment, producing goods and services, paying taxes on these and creating wealth for business owners and the economy.

Further changes are due in April 2027, when pensions with a monetary value on death will become subject to IHT. Conceptually there is a case for pensions being subject to IHT, or Income Tax, but not both but the proposals to implement these changes are complex and will create significant additional risk, for executors, and expense in the administration of an estate It is not just practitioners highlighting these issues, the House of Lords Economic Affairs Committee’s report of 28 January 2026 sets out similar concerns in clear terms.

Without further revisal there is a real danger the proposed legislation is unworkable. If the legislation remains unchanged, the administration of estates will become more problematic, more time consuming and significantly more expensive. That serves no-one’s interests: not the Government, executors, beneficiaries, or those tasked with administering estates.

Will there be further amendments to come? Hopefully, but time will tell.

John McArthur is Partner and Head of Tax, Gillespie Macandrew LLP