Guest article by Amy Lane, Partner at Gunnercooke
Inheritance Tax (IHT) has long been a key consideration for business owners. The infamous 2025 Budget introduced significant reforms to how Business Property Relief (BR) will work from 2026, altering the estate planning landscape. In this post, I’ll walk through what’s changing, who will be affected, the planning opportunities pitfalls and what steps to take now.
What is Business Relief?
To set the scene, Business Relief (BR) allows qualifying business assets to be passed free of IHT provided certain conditions are met. These reliefs have allowed businesses and qualifying assets to pass on their value without facing a crippling IHT bill – until now. The rules before the Budget were there was no limit on the amount of BR assets you could pass on death.
The new rules: What’s changing from April 2026
The Budget’s “reform” of IHT reliefs introduces a more restricted regime from 6 April 2026. Here are the headline changes:
£1million cap on full relief
The full 100% BR will only apply to the first £1million of combined qualifying business assets per individual (or per trust for relevant trust charges). The £1million allowance is combined with the relief for agricultural assets, meaning the allowance is apportioned between the two.
The £1million allowance will refresh every seven years for individuals, like the standard Nil Rate Band. Any unused allowance is not transferrable between spouses or civil partners, so the allowance should ideally be used where possible.
For trustees, the allowance will refresh every ten years and applies to all trusts created by the same settlor after 30 October 2024.
For trusts that held qualifying assets before the Budget, the old rules apply until the next ten-year anniversary.
50% relief beyond the cap
For qualifying assets above the £1 million allowance, only 50% relief will be available. In effect, the excess becomes subject to IHT at an effective rate of 20% compared to the 40% payable on non-business or agricultural assets.
AIM / listed but not “recognised exchange” shares
Shares listed on AIM or similar markets currently eligible for full BR (if conditions met) will no longer qualify for 100% relief. Instead, these will be subject to 50% relief in all circumstances.
The option to pay IHT on qualifying business assets over 10 years (interest‑free) is being maintained (or extended) under the new rules.
Who is likely to be affected?
These reforms are targeted at larger estates, especially those with significant business or agricultural assets. Some observations:
- Estates where business or farm assets exceed £1million will see the biggest impact.
- Owners holding shares via trusts will need to review and consider how the IHT will be paid at the anniversary or exit.
- The changes will not affect spousal transfers (i.e. transfers to a spouse or civil partner remain exempt) (although the £1million allowance is not going to be transferrable between spouses).
Do I need to act before 6 April 2026?
It is certainly worth anyone with shares to consider whether there’s anything worth doing before April, as is the case for reviewing existing trusts. However, care must be taken because of the anti‑forestalling rules. It is worth reviewing your estate to see what, if anything, could be done. This could include settling business assets into trusts before the cut-off date.
Final thoughts
These reforms represent one of the most significant resets to the IHT relief regime for businesses (and farms) in many years. For many family enterprises, the changes will materially increase IHT exposure and force more careful estate planning.
If you are a business owner, there is a clear imperative to act now – to review estates, consider restructuring, reassess trust arrangements, and ensure that successors are not saddled with crippling tax liabilities.
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Note:
• This blog is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
• The Financial Conduct Authority does not regulate some aspects of Trust, Tax and Estate Planning
• The Financial Conduct Authority (FCA) does not regulate Inheritance Tax Planning or Trust Advice.