In late 2024, the UK Government announced sweeping changes to the rules around Inheritance Tax (IHT) Business Property Relief (BPR) as part of its Autumn Budget. Sparked in part by controversy surrounding inheritance practices within the farming community who previously benefited from full Agricultural Property Relief (APR). These changes are set to reshape how family-owned businesses, of all types, plan their succession. What began as a targeted clampdown on perceived tax avoidance has now extended far beyond agriculture, capturing any trading business with significant value.
The government’s upcoming changes to Inheritance Tax (IHT) Business Property Relief (BPR) are among the most significant in a generation and they extend well beyond farmers. If you’re a shareholder in a profitable trading company or a family business owner, it’s crucial to understand how these reforms could directly affect your estate and succession plans.
From 6 April 2026, the ability to pass down trading businesses without a large IHT bill will change dramatically. Under the current system, Business Property Relief has allowed families to pass on qualifying business assets like shares in a trading company free of inheritance tax. But that’s coming to an end. From the 2026 tax year, BPR (and Agricultural Property Relief, or APR) will be capped at £1 million per person. Assets over that limit will only receive 50% relief, meaning that 20% IHT will be payable on any excess value.
A Wider Impact Than You Might Think
While much of the media attention has focused on the farming community, these changes affect a much broader group. Anyone with a stake in a profitable trading business regardless of industry could be affected. That includes partnerships, limited companies, and even holders of AIM shares or investment portfolios that previously qualified for 100% BPR.
Let’s take an example. A business with £1 million in annual profits and £2 million in cash might assume the IHT value of their estate is based on the £2 million in cash. However, the valuation will more likely include a profit multiple (say 5x), bringing the total taxable value to £7 million. Under the new regime, only the first £1 million is fully relieved. The rest sees partial relief, resulting in an IHT bill that could reach £1.8 million.
The Domino Effect: Income Tax and Business Continuity
To pay that IHT bill, cash may need to be extracted from the company. But that’s not straightforward. Since the funds belong to the company, extracting them could trigger significant income tax liabilities sometimes requiring dividends of £3 million just to cover a £1.8 million bill. The result? A situation where successful businesses are forced into fire sales or closure just to fund tax liabilities.
And for those using traditional estate planning methods such as mirror wills, where everything is left to a surviving spouse the changes may render them ineffective. The £1 million BPR allowance is not transferable. Without proper planning, your estate may lose hundreds of thousands of pounds in relief.
Time is Running Out
With these changes due to take effect in April 2026, business owners have less than a year to act. But tax planning is complex. It takes time to explore the right strategies, restructure company holdings, and (if necessary) apply for advance clearance from HMRC. Options might include restructuring shareholdings between spouses, placing assets in trust, or making lifetime gifts.
While the government claims the changes will only affect a small percentage of estates, experts disagree. Privately-owned businesses across the UK could find themselves blindsided by these measures particularly those that haven’t yet begun to plan.
If you’re a business owner with a profitable company, investment property, or AIM shares, you need to understand how the IHT Business Relief changes could impact your legacy. It’s not just about tax it’s about keeping your business in the family, protecting your assets, and preserving the future you’ve worked so hard to build.
For guidance tailored to your situation, contact the expert team at Morgan Reach today. We’re here to help you navigate the changes and plan effectively for the future.
