Changes to inheritance tax and business property relief for businesses 

There has been much coverage in the press about the changes made in the Autumn 2024 Budget for farmers and potential loss of Agricultural Property Relief, however there has been far less commentary on the impact for non-farming businesses due to the similar restrictions to Business Property Relief (BPR). 

Previously BPR ensured the transfer of family businesses from one generation to the next without significant Inheritance Tax (IHT) liabilities, as currently it provides: 

• 100% relief for assets such as unincorporated businesses, a share in a partnership, unquoted shares or shares listed on an alternative stock exchange (such as AIM); or
• 50% relief for assets such as land/buildings or equipment used in a business but owned personally by the business owner.

These had to have been owned for two years before the relief could be claimed, but meant that business assets could be retained until death without incurring a significant IHT liability. 

Changes to Business Property Relief

From 6 April 2026, although there have been no changes to the qualifying conditions themselves, the amount of relief available has been capped. The cap is that the first £1million of qualifying assets will be exempt from IHT and any excess will attract 50% relief, meaning there will be an effective IHT of 20% thereafter. 

Listed shares treated as unquoted shares, such as AIM listed, will only qualify for 50% BPR from 6 April 2026.

So, if you were planning on leaving business assets in your death estate, the new rules could trigger unexpected IHT liabilities. 

Gifts prior to April 2026

Gifts made between the 30 October 2024 and 6 April 2026 will not be subject to the new £1million limit, however because of the transitional rules these could still be affected. 

If the individual dies within 7 years of the date of the transfer, any resulting IHT liability will be calculated by reference to the new rules (i.e. only the first £1million will be exempt), potentially triggering unexpected tax charges. 

HMRC issued further guidance on the 27 February 2025, when it was announced that the £1million allowance for individuals will be refreshed every seven years on a rolling basis, which may provide some relief.  

Trusts 

Where trusts have been set up to hold business assets, these will receive a combined £1million allowance. Although if multiple trusts have been set up before 30 October 2024, these may have their own £1million allowance.

Consideration will need to be given by the trustees to the impact of these new rules in relation to 10-year anniversary charges and exit charges for in respect of capital distributions. 

Where any business assets are held in qualifying income in possession trusts (where the assets are treated as part of the estate of the life tenant), a charge to tax may arise for trustees on the death of the life tenant or where the life interest comes to an end, where previously it would not have done. 

Payment of Inheritance tax 

From April 2026, IHT on business property may be paid over ten annual instalments which will be interest-free and so offers some measure of mitigation. 

Recommended action for business owners

Given the changes will not come into effect until April 2026, now is a sensible time for family businesses to act and consider whether it would be beneficial for any transfers to be made prior to April 2026 in order to take advantage of the current relief available.

It would also be sensible for current wills and plans to be reviewed to see how these are impacted by the changes made and the options available. 

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