Business Property Relief (or Business Relief) (‘BPR’) reduces the rate at which inheritance tax (‘IHT’) is payable, but changes on 6th April 2026 will affect how much relief is available. The proposed £1m relief cap was, after much lobbying, lifted to £2.5m on 23 December 2025, but we are now in a transitional phase where the old and new rules collide. This creates a rare window for strategic planning before the 6 April 2026 changes take full effect. For business owners, acting now could lock in significant tax advantages before the new regime lands.
Current Rules
IHT is typically charged at 40% unless a relief or exemption can be applied.
Business property relief can be at a rate of 100% or 50% depending on the type of the business assets (see our first blog here.) These reliefs can reduce the IHT of qualifying business property to 0% or 20%. This can mean that potentially an unlimited amount of qualifying business assets can be left free of IHT on your death or when making gifts in lifetime.
Transfers between spouses remain exempt from IHT.
New Rules (from 6th April 2026)
100% business relief will be limited to the first £2.5M of qualifying business assets. This means that an individual can now only leave £2.5M of qualifying business assets free of IHT on death. All additional qualifying business assets will attract IHT relief at 50% (which in essence produces a tax rate of 20%). The £2.5m will be shared across assets which attract BPR and agricultural property relief on a pro rata basis.
In respect of spouses, transfers between spouses remain exempt from IHT but this new band of £2.5m is also able to be transferred between spouses. As a result, any unused amount of the £2.5m band on fist death will be transferred to the surviving spouse, akin to the nil rate band rules we currently have in place. As a result, there is the potential to have, on the second death of a spouse, a maximum sum of £5.65m able to pass free of IHT. I caveat this though on the basis that the new legislation has yet to be released.
In addition to the shares and trading of a ‘classic’ company structure the rules in relation to AIM listed shares is also changing. Those shares will now only qualify for relief at 50% as opposed to 100%.
Transitional period
We are currently in a transitional period where anti-forestalling provisions are being applied. In simple terms, any gifts or transfers made before 30 October 2024 to individuals or trusts will be treated with the current rules applying to them. Any gifts made from 30 October 2024 onwards, if that person dies after 5 April 2026 and their death is within 7 years of that gift, any IHT liability will be calculated by reference to the new rules.
There are rules applying to trusts which we will cover in our next article in this series.
Other key points
IHT on assets which attract BPR will be able to pay the IHT by instalments over a period of 10 years and, based on the current proposals, interest free.
It is proposed that from 2031, the allowance will be index linked in line with inflation in an attempt to maintain a real value position.
What can business owners do now, in advance of 6th April 2026?
There is a window of opportunity, but it is short. Three actions business owners should take now:
- Review inheritance tax exposure and the effect of the new rules;
- Consider banking the business relief using the current rules (often using trusts);
- Consider restructuring of the business ownership to utilise all available business relief.
This is our second of a series of 5 articles where the Private Wealth and Corporate Teams guide you through the reforms and what you need to consider as a business owner to make the most of your planning opportunities. The clock is ticking to April 2026, and these changes aren’t just tweaks, they are game-changing. If you own a business, you need to understand what’s coming.
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