Capital gains, inheritance tax and estate planning updates for 2026

Significant changes to capital taxes are coming into effect over the next two years, affecting everything from inheritance tax and pension death benefits to capital gains tax and business reliefs. These reforms will impact business owners, families, and estates, making forward planning more important than ever. This blog summarises the key updates for 2026 and outlines what you may need to consider.

Capital gains tax basics

The capital gains tax (CGT) rates for disposals by individuals are:

• 18% for UK basic rate taxpayers
• 24% for UK higher and additional rate taxpayers.

These rates also apply to the disposal of residential property.

Annual exemption: The annual exemption for 2025/26 remains at £3,000. An individual can make gains up to this limit without payment of CGT. In the case of spouses and civil partners, it is always beneficial if both parties can use the exemption.

Key CGT reliefs: These include private residence relief; business asset rollover relief, allowing a gain on a business asset to be deferred; and business asset gift relief, allowing a gain on business assets given away to be held over until disposed of by the recipient.

Make use of the annual exemption

Spouses are taxed independently for CGT purposes. Each spouse has an annual exemption which can be used before any CGT has to be paid. The annual exemption is now fixed permanently at £3,000, and is no longer uprated yearly in line with inflation.

The annual exemption cannot be transferred between spouses. Neither can a loss made by one party be set off against a gain of the other. Note also that the annual exemption cannot be carried forward to future years. It must be used or lost.

Transfer assets between spouses

The transfer of assets between spouses is neutral for CGT, and such transfer is sometimes carried out shortly before an asset is sold to minimise tax. This can be useful if one pays tax at higher rates and the other has not used the basic rate band in full. It may also make the difference between paying tax at 18% rather than 24%.

Planning points for unmarried couples

Unmarried couples will find it beneficial to equalise income as much as possible to minimise income tax. But it should be noted that unmarried couples do not benefit from CGT neutral transfers between parties, making the transfer of assets potentially liable to CGT. Where any such transfer is substantial, an Inheritance Tax (IHT) liability could also arise.

Will planning is especially important for unmarried couples. Both parties must make a will if they want the other to benefit from their estate at death.

Business asset disposal relief (BADR)

BADR may be available for certain business disposals and has the effect of charging the first £1m of gains qualifying for the relief at an effective rate of 14% for 2025/26.

One such condition is that for companies, there is the need to qualify as ‘trading’ companies. The legislation defines this as not including ‘to a substantial extent activities other than trading activities’, and it can be a contentious area.

BADR: Higher tax rate coming

The value of BADR has been chipped away over recent years, and the rate of tax increases again for disposals made on or after 6 April 2026.

Investors’ relief

This CGT rate available for external investors in unlisted trading companies has been rising in stages. Like BADR, it increases from 14% to 18% for disposals made on or after 6 April 2026.

Employee ownership trusts

The rules on relief available for qualifying disposals by business owners selling their shares to Employee Ownership Trusts were changed with effect from 26 November 2025, and we can advise further here.

Cryptoassets

Disposal of cryptoassets may create a tax liability. In most cases, HMRC is likely to treat the holding of cryptoassets as a personal investment, rather than a trade, bringing disposals within the CGT rules.

The taxation of cryptoassets is a complex area and we can advise further.

Inheritance tax

The basics

• IHT is paid on the value of an estate at death, and some chargeable lifetime gifts
• The rate of tax on death is 40%, and 20% on lifetime gifts
• Many lifetime gifts will escape IHT altogether where the donor lives for seven years after making the gift
• Valuable IHT reliefs exist, such as the nil rate band and the residential nil rate band
• IHT only affects a minority of estates, and there is usually no IHT to pay if assets are left to a spouse or civil partner

The nil rate band and residential nil rate band

The first £325,000 is chargeable to IHT at 0%. Unused NRB can be passed to the surviving spouse/civil partner. The residential nil rate band (RNRB) is a further nil rate band of £175,000 available where an interest in a qualifying residence is passed to direct descendants.

Taken together, this potentially gives relief of up to £1 million for the joint estate of a married couple/civil partnership. Restrictions apply where estates, before reliefs, are more than £2 million.

Annual exemption

An amount of £3,000 per year may be given without an IHT charge. Any unused annual exemption can be carried forward for one year only.

Lifetime gifts

Lifetime gifts fall into three categories:

• Potentially exempt transfers. IHT is only due here if the donor dies within seven years of making the gift. Taper relief, reducing the rate of IHT, may be available for gifts made three to seven years before death
• Transfers to a company or trust, which are immediately chargeable
• Exempt gifts:
  • Small gifts (gifts to individuals of up to £250 in total per tax year, per recipient)
  • Gifts for weddings or civil partnerships: Gifts to mark a wedding/civil partnership to a child are exempt up to £5,000; £2,500 for a grandchild or great-grandchild; and £1,000 for any other individual. This can be combined with any other allowance except the small gift allowance.
  • Normal expenditure out of income: Gifts made out of income, which are typical, habitual, and do not detract from the donor’s standard of living
  • Family maintenance: This includes transfer of property made under a court order on divorce; a gift for the education of children; or maintenance of a dependent relative.
  • Gifts to UK-registered charities
  • Gifts between spouses

Forthcoming IHT changes

Two major changes require consideration:

• The extension of IHT to unused pension funds and death benefits from 6 April 2027
• Restrictions to business property relief (BPR) and agricultural property relief (APR) applying from 6 April 2026 and the impact of last-minute amendments to the original proposals which were announced at the end of 2025.

IHT change for pension funds

In a move aimed to stop pension saving being used as a tax planning vehicle to transfer wealth without an IHT charge, rather than to fund retirement, unused pension funds and death benefits payable from a pension are brought into the value of an estate for IHT from 6 April 2027.

This does not include death in service benefits payable from registered pension schemes. Note, too, that where the pension fund is left entirely to a spouse or civil partner, there is no IHT charge. Where there is an IHT liability, however, pension assets will be exposed to IHT at 40%.

It will be the personal representatives’ responsibility to report and pay any IHT due. They will, however, be able to direct the scheme administrators to keep back 50% of the taxable benefits for up to 15 months from the date of death, and use this to pay HMRC, in certain circumstances.

Strategic planning

There may be a need to reconsider overall planning where:

• There is significant pension saving involved
• The aim had been to use part, or all of this to pass to loved ones on death.

Deciding how wealth is to be passed on; working out how funds are withdrawn from investments; which investments are used; when they are accessed; and in what order, take on new importance.

With IHT due within six months of the date of death, and typically before probate is granted, liquidity is another consideration.

Actions you may want to consider include:

• Making lifetime gifts to reduce the value of your estate, with all the implications for your personal finances and tax involved
• Accessing pension funds, noting the consequences this may have
• Reviewing overall investment and retirement funding strategies. Traditional advice in the past has been to use non pension assets (ISAs, cash savings and other investments) before pension assets, but these strategies may now change
• Purchasing life insurance to provide a lump sum on death to settle any IHT liability. Ensuring this is written in trust will keep it outside your estate for IHT and give your beneficiaries the liquidity they need before probate is granted. This is a complex area, where further advice will be needed
• Checking that your will is up to date, and an appropriate beneficiary is nominated for your pension.

This is a major change and we can help you assess the implications in your circumstances.

Change to BPR and APR: latest information

From 6 April 2026, a new cap will apply to business property relief (BPR) and agricultural property relief (APR). The first £2.5 million of qualifying business and agricultural assets will qualify for 100% relief, with assets above this limit attracting 50% relief. This cap applies to both trading and farming businesses.

Lifetime allowance: latest information

Under the latest proposals, the first £2.5 million of qualifying business and agricultural assets will attract 100% relief.

The £2.5 million limit is a combined limit across all eligible business and agricultural property. Any additional assets above this limit will only attract relief at 50%. The £2.5 million allowance is frozen until 5 April 2031, and is expected to increase in line with inflation thereafter.

The new rules will also apply for lifetime transfers made on or after 30 October 2024, where the donor dies within seven years of the gift, but only if the death occurs on or after 6 April 2026.

Assets to which the existing 50% relief already applies do not count towards the £2.5 million limit, and the 50% rate continues to apply unchanged.

The £2.5 million limit could be used to cover, for example:

• £2.5 million of property qualifying for BPR or
• £1 million of property qualifying for BPR and £1.5 million of property qualifying for APR.

Transfer between spouses and civil partners: latest information

The Autumn Budget 2025 announced that any unused allowance will be transferable between spouses and civil partners. This will apply to those widowed and losing spouses or civil partners before the policy is introduced.

These amendments to the original proposals mean that a couple will be able to pass on up to £5 million of agricultural or business assets between them before paying IHT. Existing allowances, such as the nil rate band, can be used in addition to this.

Trusts: The new £2.5 million limit will also apply to the combined value of relievable agricultural and business property in trusts. We can advise further on the detail here.

Qualifying alternative investment market (AIM) shares: The rate of BPR available will be reduced from 100% to 50%.

Funding an IHT liability

IHT is normally due six months after the date of death. The new rules provide the option to pay the IHT liability by equal annual instalments over ten years, interest-free, for all property which is eligible for APR or BPR. For some, it may be appropriate to plan to meet the cost of future liabilities through life assurance arrangements.

But there are much wider questions involved, which may impact long term plans for the business. Even though an IHT liability is a personal tax problem, many businesses may feel they have no option but to fund it via extraction from the company, and this could have potential consequences for its future.

Options you may want to consider, in order to plan round the IHT changes, include:

• Sale of the business
• Involving the next generation now, and moving assets down a generation
• Restructuring how a property or business is owned, considering use of trusts, or use of companies
• For partnerships, reviewing partnership structure and agreements.

We can help robust planning for the future, with advice specific to your circumstances. Please contact us to discuss the outlook for your business under the new rules.