Business property relief to be capped from April 2026
23 July 2025 | posted in Private client law
While inheritance tax (IHT) is typically charged at 40% on estates without reliefs, business property relief (BPR) currently offers either 100% or 50% relief on the value of qualifying assets, with shares in privately-owned trading companies receiving 100% relief. However, the upcoming changes will cap the amount eligible for 100% relief, significantly impacting those with assets valued in excess of £1 million. Individuals with substantial assets need to reassess their inheritance tax strategies before the changes take effect in April.
Key considerations
1. Who will be affected by the changes
If you own business assets worth more than £1 million, then you will be affected by the proposed changes.
2. Why early planning is essential
Although the changes aren’t expected to come in until April 2026, it’s important you start planning now. Your own personal circumstances will dictate the best solution.
3. Gifting before October 2024 could preserve full relief
Use it or lose it! Under current proposals, the £1 million is not transferrable to your spouse on death. Ensure wills are appropriately drafted and review ownership of your business to maximise relief.
Gifts made before 30 October 2024 will continue to qualify for 100% BPR, even if the donor dies after 6 April 2026.
Gifts made after 30 October 2024 will fall into the new rules if the donor dies after 6 April 2026.
4. Spousal transfers and the two-year ownership rule
The two-year ownership requirement for BPR must be met if assets are gifted to a spouse during the donor’s lifetime. This does not apply where assets are inherited.
5. Review existing trust arrangements
Previous planning with trusts will be affected, but trusts may still be a beneficial IHT mitigation tool.
6. Check your business qualifies for relief
Make sure your business is qualifying – for example, large cash balances could be an issue and there may be steps you can take to maximise relief – e.g. using BPR qualifying investments. Obtain a proper valuation with indemnity in place in case HMRC disagree.
7. Update shareholder agreements and partnership deeds
Businesses should consider shareholder protection. This enables surviving shareholders to buy back the deceased’s shares, retain control of the business, and provide financial security for the deceased’s family.
Shareholders’ agreements and partnership deeds will almost certainly need updating to align with the new rules, to ensure they support the intended tax reliefs and succession outcomes.
8. Review LPAs and company documents
The forthcoming reforms are expected to significantly affect how attorneys and executors manage business assets. Individuals acting under a lasting power of attorney (LPA) should consider making gifts or restructuring holdings before April 2026 to preserve available reliefs.
The ability to act will remain subject to any existing limitations within the power, so it is important to review the LPA and the company’s articles and memorandum of association. Clients should also consider business-specific LPAs to help facilitate the transfer or sale of assets.
9. Selling your business could increase your IHT bill
Selling your business ends your eligibility for BPR, increasing your IHT liability immediately – consult a financial adviser at least 6 months in advance to plan accordingly.
10. Replacement property relief may still apply
If you sold your business within the last three years, you could still benefit from replacement property relief if the proceeds are reinvested into a BPR qualifying investment.
Take action now
With significant changes to business property relief on the horizon, early and informed planning is essential. Speak to your legal and financial advisers as soon as possible to review your estate, restructure your business if needed and ensure your succession plans are still fit for purpose.
Watch more in the video below, where experts from Moore SGD Law and Moore Kingston Smith discuss the tax, legal and financial planning implications for business owners and their families.
