Business Property Relief and the April 2026 IHT Reform: What Business Owners Must Know

Business Property Relief (BPR) is one of the most valuable reliefs in the UK Inheritance Tax Act. For owners of qualifying business assets — typically shares in unquoted trading companies — 100% BPR means that those assets pass free of IHT, regardless of their value. It has been central to succession planning for entrepreneurs, family business owners, and investors in AIM-listed shares for decades.

From 6 April 2026, that changed. The Autumn Budget 2024 announced a cap on 100% BPR, and subsequent legislation — as amended in December 2025 — confirmed that only the first £2.5 million of qualifying business property per individual will attract 100% relief. Qualifying property above that threshold will attract only 50% relief. The remaining 50% will be subject to IHT at 40%, creating a meaningful tax charge even on businesses that fully qualify for BPR. (The original proposal was a £1m threshold; the government raised this to £2.5m following consultation, confirmed on 23 December 2025.)

For business owners with stakes in businesses worth significantly more than £2.5m — which applies to many successful HNW entrepreneurs — this is a watershed change that demands careful planning.

What Is Business Property Relief?

BPR reduces the chargeable value of "relevant business property" for IHT purposes. Under the pre-reform rules (which applied until 5 April 2026):

• 100% BPR: Unquoted shares in a trading company; sole trader business assets; partnership interests.
• 50% BPR: Quoted shares in a trading company where the holder controls the company; certain land/buildings/machinery used in a business owned personally (not through the company).

The business must have been owned for at least 2 years before the transfer. The company must be a qualifying trading company — not mainly an investment company.

The April 2026 Reform: The £2.5m Cap

From 6 April 2026, for deaths, gifts, and transfers into trust:

New rule:

• The first £2.5m of qualifying 100% BPR property per individual: exempt (100% relief still applies);
• Qualifying property above £2.5m: only 50% relief, meaning 50% is chargeable to IHT at 40% — effective additional IHT rate of 20% on the excess.

Combined with APR: The £2.5m cap is a combined cap for BPR and Agricultural Property Relief (APR). Where both apply (e.g., a farming business with both BPR and APR), they share one £2.5m allowance between them.

Each individual has their own £2.5m allowance: For a married couple who both own qualifying business property, each has their own £2.5m allowance — up to £5m of qualifying property can attract 100% relief. Planning around the ownership structure between spouses is therefore significant.

AIM and unlisted shares: A separate change affects AIM-listed and other unlisted shares. From 6 April 2026, AIM shares and unlisted shares previously qualifying for 100% BPR now qualify for 50% relief only — the £2.5m 100% allowance does not apply to them. This creates an effective 20% IHT rate on all qualifying AIM holdings at death.

Who Is Affected?

Most significantly affected:

• Sole entrepreneurs who own a controlling or majority stake in a trading company worth more than £2.5m;
• Family business owners with multi-generational holdings above £2.5m per individual;
• AIM share investors (AIM shares and unlisted shares now attract 50% relief only from 6 April 2026, regardless of value — the £2.5m 100% allowance does not apply to them);
• Farmers with trading businesses whose combined APR/BPR qualifying value exceeds £2.5m (see our APR guide).

Less affected:

• Business owners whose stake is worth less than £2.5m (typically smaller businesses);
• Individuals where the business is transferred to a spouse first (the surviving spouse's own £2.5m allowance then applies at the spouse's death);
• Businesses that undertook pre-reform restructuring before April 2026.

The Impact: A Worked Example

Pre-reform (before 6 April 2026): James owns 100% of a trading company worth £8m. He has no other assets for BPR purposes. On his death:

• £8m of shares attracts 100% BPR: £0 IHT attributable to the company shares.
• Total IHT liability (excluding other estate assets): £0.

Post-reform (deaths after 5 April 2026):

• First £2.5m of shares: 100% BPR, exempt;
• Remaining £5.5m: 50% BPR, so £2.75m is chargeable;
• IHT at 40% on £2.75m (less nil-rate band of £325,000 assuming none available): approximately £970,000 IHT.

The change from £0 to approximately £970,000 IHT is still dramatic for the family. Without planning, the estate may need to sell shares, take loans, or use insurance to fund the liability.

Instalment Payments

One concession available for business property: IHT attributable to qualifying business assets may be paid in 10 equal annual instalments, rather than as a lump sum within 6 months of death. From 6 April 2026, these instalments are interest-free for qualifying BPR and APR property (a welcome improvement over the previous rules under which interest accrued on the outstanding balance).

For a circa £970,000 IHT bill on a business, 10 annual instalments of approximately £97,000 may be manageable if the business continues to generate dividends. However, for family businesses where cash extraction is difficult or the business is capital-intensive, even 10 annual instalments can be onerous.

Spousal Transfer Planning

First death, then spouse's death: Under current rules, transferring business assets to a spouse on first death is IHT-free (spousal exemption). The surviving spouse then owns the business. On the surviving spouse's death, the surviving spouse's own £2.5m BPR allowance applies. This was always available; the reform makes it more important to plan for the surviving spouse to hold qualifying assets in their own right.

Equalisation of ownership: Where a business is owned primarily by one spouse, transferring partial ownership to the other before death gives both spouses access to their individual £2.5m allowances. A couple could shelter up to £5m at 100% BPR (rather than just one's £2.5m). This transfer is between spouses at no gain/no loss for CGT and exempt for IHT.

Care required: HMRC may challenge transfers made shortly before death as gratuitous disposals. The transfer should be genuine, properly documented, and reflect real economic ownership — not simply a deathbed manoeuvre.

Will Structures and Nil-Rate Band

For estates above the BPR cap, the standard nil-rate band (£325,000) and residence nil-rate band (RNRB, up to £175,000) provide some additional shelter. These should be used efficiently in will planning.

Discretionary trusts: For business owners with estates above the BPR cap, a well-structured discretionary will trust can ensure the NRB and RNRB are not wasted, while giving trustees flexibility to manage IHT over time.

Life Insurance to Fund the Tax

For business owners who are unwilling or unable to restructure ownership, whole-of-life insurance written in trust provides a clean solution:

• A policy sized to cover the projected IHT bill (based on current business value);
• Written in a discretionary trust — so the death benefit does not form part of the taxable estate;
• Premiums paid from income (potentially qualifying for the normal expenditure out of income IHT exemption).

Premium cost: For a circa £970,000 projected IHT bill (on an £8m business as in the worked example above), a whole-of-life policy for a 55-year-old non-smoker might cost approximately £16,000–£28,000 per year in premiums. The economics depend on health, age, and the precise projected IHT exposure. The business must be able to fund the premiums.

Planning Now That the Reform Is in Force

The reform has applied to all deaths, gifts, and transfers into trust occurring on or after 6 April 2026. The pre-reform unlimited 100% BPR window is closed. Planning under the new regime focuses on:

1. Lifetime gifts of business shares (post-reform): A gift of qualifying business shares after 5 April 2026 is a PET assessed under the new rules. On the donor's death within 7 years, BPR will apply under the new £2.5m cap. Gifts above the £2.5m per-person allowance will result in an IHT charge on the failed PET. Large gift programmes need careful sequencing to maximise use of both the donor's and recipient's allowances.

2. Gifts into discretionary trust (post-reform): A CLT of qualifying business shares into a discretionary trust will be assessed under the new rules — the trust has its own £2.5m allowance. Transfers above £2.5m will attract a 20% entry charge on the excess (after applying nil-rate band).

3. Revisit the business structure: For business owners whose companies include investment assets (investment holding subsidiaries, surplus cash, investment properties), restructuring to separate the trading and investment elements can maximise BPR coverage on the trading business. Investment assets within a trading company can compromise BPR qualification.

4. Review AIM portfolios: AIM share portfolios previously held for BPR purposes now attract only 50% relief, regardless of value. The effective 20% IHT rate on all AIM BPR holdings should prompt a review of whether continued AIM BPR investment remains appropriate in the portfolio context, or whether other planning approaches (e.g. insurance, lifetime gifting) are more efficient.

Tax rules are subject to change; the above reflects legislation as of June 2026. Seek specialist tax and legal advice before making any structural changes to your business or estate plan.

How Global Investments Can Help

The BPR reform represents the most significant change to business succession planning in a generation. Global Investments works with specialist private client solicitors and tax advisers to assess the impact on our clients' estates, model the projected IHT cost under the new rules, and develop planning strategies under the new regime. We advise on post-reform planning — insurance funding, will restructuring, business restructuring, and lifetime gift programmes. Contact us for a confidential review of your business IHT position.