If you own or have shares in a business, Business Property Relief (BPR) could make a huge difference to how much of your estate is passed on to loved ones free of Inheritance Tax.
For many years, BPR has been one of the most generous tax reliefs available — helping family businesses and company owners pass on their assets without being hit by large tax bills. But that generosity is about to be scaled back.
From April 2026, new government rules will change the way BPR works.
What is Business Property Relief?
BPR was created to make sure that genuine trading businesses wouldn’t have to be sold just to pay an Inheritance Tax (IHT) bill when an owner dies.
If you’ve owned and run a qualifying business or held shares in one for at least two years, you can usually pass on those assets free from Inheritance Tax. That can apply to things like:
- Shares in a family trading company
- Business premises
- Machinery or equipment used in the business
In many cases, 100% of the value of these assets is protected — meaning that your family can inherit the business intact and continue to run it.
Because of this, BPR has been a cornerstone of estate planning for entrepreneurs, business owners, and farming families for decades.
What’s changing — and why it matters
In the 2024 Autumn Budget, the government announced reforms to both Business Property Relief and Agricultural Property Relief that will take effect from 6 April 2026.
Under the revised rules, 100% relief will apply only to the first £2.5 million of qualifying business or agricultural property in an estate. Any value above this threshold will still receive relief, but only at 50%.
For many families, this still represents a significant tax saving — but it is a major change from the current system where some estates can qualify for unlimited 100% relief.
For example:
If your qualifying business assets are worth £4 million, the first £2.5 million could still pass on tax-free. But the remaining £1.5 million would only receive 50% relief, meaning £750,000 could be subject to Inheritance Tax at 40%.
That could create a potential tax bill of £300,000 that your family may not have expected.
These changes will affect many business owners, especially those with valuable property, machinery, or shares in successful companies.
However, the rules do allow unused allowances to transfer between spouses or civil partners, meaning a couple could potentially pass on up to £5 million of qualifying business or agricultural assets free of inheritance tax, before other allowances are considered.
It’s not just for business owners — trusts could also be affected
The reforms also make changes to how trusts are taxed when they hold business property. At present, trusts can benefit from BPR in much the same way as individuals. But from April, a £2.5 million allowance will also apply to qualifying business or agricultural property held in trust, with different rules affecting transfers into trusts, ten-year anniversary charges, and exit charges.
This means trusts containing valuable business assets may face higher tax charges than under the current system.
If you’ve set up a family trust that includes business assets, now is the time to review how it’s structured and whether the new rules could create an unwanted tax liability.
Here are a few practical steps to consider:
1. Review your business and estate plans: Take a fresh look at how your assets are structured. Which ones qualify for BPR? How much would be affected by the new £2.5 million allowance?
2. Consider making transfers: In some cases, passing on part of your business or transferring assets now could allow them to qualify under the existing, more favourable regime.
3. Revisit trusts and succession plans: If your estate includes business interests held in trust, it’s important to check how those trusts will be impacted. Timing and structure may make a big difference.
4. Update your will and other key documents: Many wills and shareholder agreements have been drafted on the assumption that BPR gives full relief on all business assets. That may no longer be the case, so these documents should be reviewed.
5. Plan for future tax bills: If your business is likely to exceed the £2.5 million threshold, think about how any future tax bill would be paid. For example, some business owners take out life insurance policies or restructure ownership to create liquidity when it’s needed.
Making gifts or transfers often requires careful timing and advance planning to comply with tax rules — so acting early is the safest route.
Every situation is different. The right approach will depend on your business structure, family circumstances, and long-term plans.
How we can help
At Hutchinson Thomas, our teams work together to help business owners protect what they’ve built and pass it on efficiently to the next generation.
With the rules on Business Property Relief changing, it’s very important to make sure your arrangements still work as intended. If you’d like tailored advice on how the reforms may affect you or your business, please contact us today on 01639 645061.