February 2026: HMRC’s latest Trusts and Estates Update
Twice a year HMRC publishes its Trusts and Estates Newsletter. The latest update from HMRC (published on 4.2.2026) provides critical guidance for taxpayers regarding significant reforms to inheritance tax, administrative changes for bereavement services, and shifting tax rates for trusts and estates.
Reforms to Inheritance Tax (IHT)
Agricultural and Business Property Relief (APR and BPR): From 6 April 2026, these reliefs will be reformed. The government has increased the allowance for the 100% rate of relief to £2.5 million, up from the previously discussed £1 million. Crucially, any unused allowance will be transferable between spouses and civil partners, potentially allowing a couple to pass on up to £5 million in assets tax-free.
Pensions and Death Benefits: Starting 6 April 2027, unused pension funds and death benefits will be included in a person's estate for IHT purposes. Personal representatives (PRs) will be responsible for reporting and paying this tax. To facilitate this, PRs can direct pension administrators to withhold 50% of taxable benefits for up to 15 months to cover the anticipated liability.
Threshold Freeze: The Inheritance Tax nil-rate band remains fixed at £325,000, and the residential nil-rate band at £175,000, with these levels now frozen until 5 April 2031.
Cryptoassets: HMRC reminds taxpayers that cryptoassets must be reported on IHT returns using form IHT400, specifically in box 76.
Income Tax Rates for Trusts
Dividends: From the 2026 to 2027 tax year, the 8.75% dividend rate will increase to 10.75%.
Property and Savings: From the 2027 to 2028 tax year, the existing 20% and 45% rates will rise to 22% and 47% respectively. Non-dividend income that is not from property or savings will remain at the 20% and 45% rates.
Capital Gains Tax (CGT) and Relief Adjustments
Employee Ownership Trusts (EOT): For disposals made on or after 26 November 2025, the CGT relief available on shares sold to an EOT has been reduced from 100% to 50%.
Incorporation Relief: Previously applied automatically, from 6 April 2026, incorporation relief must be actively claimed on a Self Assessment return for the year the transfer occurs.
Anti-Avoidance: New measures targeting share exchanges and company reconstructions took effect on 26 November 2025 to more effectively counter avoidance arrangements.
Automatic Exchange of Information (AEIO)
Effective 1 January 2026, updates to the OECD Common Reporting Standard have expanded the scope of financial products and institutions subject to due diligence. All reporting financial institutions and trustee-documented trusts must now register for the AEOI service, even if they have no reportable accounts. While late registration penalties exist, they will not be charged automatically if there is a reasonable excuse for the delay.