Inheritance Tax Shock 2026: Why UK Families Could Pay Over £500,000

Many families in the UK who run small businesses or own farms could soon face a big tax surprise. Starting April 2026, new rules may cause inheritance tax bills to rise sharply. These changes come after decisions made by Chancellor Rachel Reeves.

The new rules will affect how much families can pass on to their children without paying large taxes—possibly over £500,000. This article explains what’s changing, who is affected, and what it could mean for families like yours.

What Is Inheritance Tax and What’s Changing?

Inheritance tax is the money paid to the government when someone dies and leaves behind money, property, or a business. Right now, some businesses and farms don’t have to pay this tax because of special discounts called Business Property Relief (BPR) and Agricultural Property Relief (APR).

But from April 2026, Rachel Reeves plans to change that. The key changes are:

• The relief (tax discount) will only apply to assets worth up to £1 million.
• Any value above £1 million will be taxed at 20%.

Before this, many family-run shops and farms were fully protected. But with these new rules, even small businesses could now face a big tax bill if their total value is over the £1 million mark.

How Much Could Families End Up Paying?

Experts at a company called Saffery say the average tax bill under the new rules could be £547,000. That’s more than half a million pounds!

Even a small shop in a high-cost area like South East England could cross the £1 million limit. This means even simple, family-owned businesses might end up paying huge taxes—money they didn’t plan for.

Who Will Be Hit the Hardest?

These new tax rules will mainly affect:

• Family-run businesses
• Small farms
• Shops passed down through generations

Even if the business doesn’t earn a lot of profit, its property value might push it over the tax-free limit. Families who worked hard for years could now be forced to sell their assets or take loans just to pay the tax.

How Much Will the Government Earn?

The Office for Budget Responsibility (OBR) says this change will help the UK government earn around £500 million extra every year by 2027–28.

Also, about 2,000 more families every year will now have to pay inheritance tax, according to HM Revenue & Customs (HMRC).

Why Are People Angry About This?

Many people—especially small business owners and farmers—are upset. They say:

• They didn’t get a chance to discuss or plan for these changes.
• The government didn’t explain how badly it would affect them.
• It feels like a punishment for hard work and job creation.

MP Alistair Carmichael, who works with rural and farming issues, also criticized the government. He said the rules ignore the problems that real working families face—especially after many farmers protested with their tractors in London asking for fair treatment.

Will There Be a Delay?

Some Members of Parliament (MPs) are now asking the government to push the change to April 2027, instead of 2026. They say more time is needed to understand how these tax rules will really affect everyday families and to give them time to prepare.

Conclusion

This change in inheritance tax rules is a big deal for families who own small farms or businesses. If the value of their property is over £1 million, they could lose hundreds of thousands of pounds to taxes.

Many feel frustrated and fear their hard-earned family business could be lost or sold just to pay the government. While the government believes this money is needed for public services, it’s clear that more talks and fair adjustments are needed before these new rules start in 2026.

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