Planning for the changes to Business Property Relief

What is Business Property Relief?

Your business interests form part of your estate for IHT, and if the value is not covered by your nil rate band of up to £500,000, you could pass on a sizeable IHT bill to your loved ones when you die. Thankfully, BPR of either 50% or 100% may be available to reduce the IHT bill on your business assets. The rate of relief depends on the nature of your business interest.

The 100% rate applies if you own: 

• Shares in an unlisted company; or 
• A business or interest in a business (including a partnership).

While the 50% rate applies if you own:

• Shares controlling more than 50% of the voting rights in a listed company; 
• Land, buildings, or machinery used in a business you’re a Partner in or that is controlled by you; or
• Land, buildings, or machinery used in the business and held in a trust it has the right to benefit from.

What are the qualifying conditions for BPR?

The business asset must be held for two years prior to transfer on death, or still be held by the recipient at death if a lifetime transfer, which was not survived by seven years (the asset in question must still meet the qualifying conditions).

The business must be wholly or mainly trading, so cannot be mainly involved in investment activities.

The relief is restricted by the value of any excepted assets, being those that are not being used wholly or mainly for business purposes throughout the two years prior to transfer. For example, excess cash beyond that required as working capital or group companies used to hold investments.

What are the changes?

With effect from 6 April 2026 the 100% relief only applies to the first £1 million of value. 

This cap applies across both BPR and Agricultural Property Relief (APR), so business owners with assets qualifying for both reliefs will only benefit from 100% relief on the first £1 million of their total qualifying assets.

Any value exceeding the £1 million limit will qualify for 50% relief, resulting in what is effectively a 20% IHT charge on the excess value.

The value of shares that are listed on the Alternative Investment Market (AIM) will only benefit from 50% BPR (currently 100%).

This £1 million allowance will refresh every seven years on a rolling basis and applies to any chargeable lifetime transfers, such as transfers to trusts and potentially exempt transfers made after 5 April 2026 and not survived by seven years. 

What options are available?

For assets that currently qualify for the 100% relief, some options that could be available to mitigate the impact of these changes include:

• Taking out a life insurance policy – premiums can be expensive, but will likely be significantly less than the IHT on death.
• Lifetime gift of the business assets – although this can be achieved tax-free as long as the donor survives seven years, this also gives up control of the business, which may not be desired.
• Put the business in trust – allows the business owner to retain control as trustee even though outside of their estate for IHT purposes. Whilst 10-year charges will arise, these should only be at 3% assuming the trustees also qualify for the 50% reduction for BPR.

How we can help

Business owners with large amounts of their net worth within their business should act early and seek advice on how best to mitigate the increased IHT liabilities under the new rules.

Whether you are looking for specific advice in respect of these changes or general estate planning advice, please fill out the form below and one of our experts will be in touch to discuss your requirements and how we can help.