Business Property Relief Changes
What the April 2026 Reforms Mean for Business Owners and Their Estates
For many years, Business Property Relief provided business owners with a degree of certainty that is now difficult to take for granted. A qualifying trading business could pass to the next generation — or to other beneficiaries — largely free of inheritance tax. The relief was broad, uncapped and, for most trading businesses, highly effective.
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That position changes from April 2026. The reforms confirmed in the Autumn Budget 2024 introduce a cap on the amount of business property qualifying for full relief, alter the treatment of AIM-listed shares, and create a more complex and conditional framework than the one business owners have planned around for decades.
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For business owners who have not reviewed their estate planning in light of these changes, the gap between what they expect and what the tax position will actually be may be significant.
What is Changing and When
The reforms take effect from 6 April 2026. The principal changes are as follows.
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The £2.5 Million Cap on 100% Relief
Under the current rules, qualifying business assets attract 100% Business Property Relief regardless of their value. From April 2026, 100% relief is capped at £2.5 million of qualifying business property per individual. Business value above that threshold will attract relief at only 50% — meaning an effective inheritance tax rate of 20% on the excess.
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For a business owner with a trading company valued at £5 million, the practical effect is a shift from a nil IHT liability on the business to a potential liability of up to £500,000 on the value above the cap — even before personal assets and pension funds are considered.
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The Spousal Position
Where business assets are held jointly between spouses or civil partners, each individual's £2.5 million threshold is available separately, providing a combined allowance of up to £5 million at 100% relief. For married business owners, this provision makes the ownership structure of the business a material planning consideration.
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AIM-Listed Shares
AIM shares previously attracted 100% Business Property Relief without any cap, making them widely used as an IHT planning vehicle. From April 2026, AIM shares are restricted to 50% relief regardless of value. This is a significant change for those who have used AIM portfolios specifically for their inheritance tax characteristics, and existing portfolios should be reviewed.
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What Remains Unchanged
The two-year minimum ownership requirement continues to apply. The distinction between qualifying trading businesses and non-qualifying investment businesses remains. The relief continues to apply to transfers on death and, subject to conditions, to lifetime transfers. The fundamental structure of the relief — that qualifying trading assets attract meaningful IHT reduction — is preserved, albeit in a more constrained form.
Who Is Most Affected
The reforms are most directly relevant to business owners in the following positions:
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Owners of trading businesses valued above £2.5 million — where the full value previously attracted 100% relief, any value above the cap will now carry a residual IHT liability. The size of that liability depends on the business valuation, the ownership structure and the other assets in the estate.
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Owners who hold business assets solely in their own name — where a business is owned by one individual rather than jointly with a spouse or civil partner — have only one £2.5 million threshold available. For business owners whose estate planning has not addressed this, a review of ownership structure may be appropriate.
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Those with AIM portfolios held for IHT purposes — the reduction to 50% relief changes the effective tax rate on AIM shares from nil to 20%. The case for holding AIM shares in an IHT planning context needs to be reassessed against the new rate and the risks associated with that asset class.
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Business owners with significant pension funds — the proposed inclusion of pension funds in the taxable estate from April 2027 compounds the effect of the BPR cap. Where an estate previously relied on both BPR and pension exclusion to manage overall IHT exposure, the combined effect of both changes may produce a liability considerably larger than existing plans anticipate. The interaction between business assets, pension funds and the nil-rate bands should be modelled in full.
The Continuity Question
Inheritance tax planning for business owners is not only a question of tax efficiency. It is a question of continuity.
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A trading business must meet a residual IHT liability — even one reduced by 50% relief — in cash within six months of the date of death. Where the business itself is the primary asset of the estate, and liquid resources outside it are limited, meeting that liability may require disposing of business interests, bringing in outside investors or disrupting trading arrangements that have taken years to build.
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The instalment option provides some relief by allowing IHT on certain qualifying business assets to be paid in ten annual instalments, but it accrues interest and does not eliminate the underlying liability. It manages the cash flow problem; it does not resolve it.
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Whole-of-life assurance written in trust is one established mechanism for creating a fund specifically available to meet an IHT liability on death, without forming part of the taxable estate and without disrupting the business itself. Our guide to Business Protection addresses this issue in detail, including the structuring considerations that apply to business owners.
Planning Considerations
The April 2026 changes make several areas of planning more important than they were previously.
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Business Valuation
Understanding the current value of the business, and how that value is likely to change over time, is the starting point for assessing the likely IHT position under the new rules. Business valuations for IHT purposes involve specific methodologies and are not always straightforward, particularly for owner-managed businesses where earnings and asset values may be difficult to separate cleanly.
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Ownership Structure
For married business owners, the availability of two separate £2.5 million thresholds makes the way the business is held between spouses a material consideration. Restructuring ownership is not always straightforward and has other legal and tax implications that must be considered alongside the IHT benefit.
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Excepted Assets
Assets held within the business that do not contribute to its trading activity — surplus cash, investments, and non-trading property — reduce the proportion of the business attracting relief. Reviewing what sits within the company, and whether any restructuring is appropriate, may improve the relief position.
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Lifetime Planning
Business Property Relief is available on lifetime transfers as well as on death, subject to the donor surviving seven years and the asset continuing to qualify at the point of transfer. For business owners who wish to begin transferring value to the next generation, this remains a meaningful option — but it requires careful structuring and legal advice.
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Liquidity Planning
Where a residual IHT liability will arise, planning for how it will be met is as important as planning to reduce it. A business that passes with a £300,000 IHT charge attached to it, but no liquid means of meeting that charge, places executors and beneficiaries in a difficult position.
Acting Before April 2026
The window between now and the April 2026 effective date is not unlimited. Ownership restructuring, trust arrangements, life assurance underwriting and business valuations all take time to arrange properly. For business owners whose estate planning has not been reviewed in light of these changes, the time to begin that review is now — not in the months immediately before the new rules take effect.
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The business owners best positioned to manage the transition are those who understand their current exposure clearly, have a plan in place before April 2026 and have addressed both the tax and continuity dimensions of the problem.
How Wills, Tax & Trusts Ltd. Can Help
Ray L. Best and the team at Wills, Tax & Trusts work with business owners and their professional advisers — including accountants, IFAs and solicitors — to assess the inheritance tax position of trading businesses and develop planning strategies that reflect the changing legislative environment.
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This begins with a clear-eyed review of the business, its structure, its ownership and its value — considered alongside the wider estate, including personal assets and pension funds. From that starting point, we identify the planning steps most appropriate to the specific circumstances and help implement them in a practical, documented way.
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If you would like to discuss the effect of the April 2026 changes on your business, we are available to help.