Business Property Relief: Don’t Get Capped Out!

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Business Property Relief: Don’t Get Capped Out!

Business owners and those with substantial business assets in the UK are facing a pivotal moment in their inheritance tax (“IHT”) planning. Changes to Business Property Relief (“BPR”) are to take effect from 6 April 2026, bringing a fundamental shift from the current uncapped relief to a new £1 million cap. Owners of family businesses can no longer adopt an estate planning strategy of doing nothing as the forthcoming changes significantly undermine succession planning.

This article sets out the key changes to the BPR relief and what key pieces of planning to consider putting in place now before the BPR changes come into effect on 6 April 2026.

BPR Changes

Currently, BPR provides 100% relief on qualifying business assets, allowing such assets to be passed free of IHT when someone passes away.

From April 2026, the following changes will be introduced to BPR:

  • The 100% relief will have a £1 million cap. This cap will apply to the combined value of both agricultural and business property. This allowance applies per individual or trust;
  • Any value exceeding £1 million will only qualify for 50% relief. This effectively means that for values above the cap, a 20% IHT rate will apply instead of the standard 40%;
  • The £1 million capped allowance is not transferrable between spouses or civil partners. Each individual’s allowance must therefore be utilised separately;
  • AIM-listed shares will only receive 50% relief rather than the 100% relief.

The above changes could be catastrophic for many family businesses who may need to extract value from the business (likely subject to income tax), to pay the inheritance tax bill. There is, therefore, an urgent need for business owners to take advice and prepare for the changes well in advance of 6 April 2026.   

Thing to Consider Before April 2026

For many family businesses and estates where a significant portion of wealth is tied up in qualifying business assets, the changes could be catastrophic where there is a need to extract value from the business to pay the IHT bill.

With less than a year until the changes come into effect, proactive planning is essential. There is therefore an urgent need for business owners to take advice and prepare for the changes well in advance of 6 April 2026.   

 Here is a summary of some of the key considerations and actions to take:

  1. Obtain up-to-date valuations of your business assets;
  2. Consider which business assets qualify for BPR;
  3. Calculate the potential IHT exposure under the new rules if you did nothing;
  4. Consider making lifetime gifts of qualifying business assets into trust ahead of the rule change to take advantage of the 100% unlimited relief rate (and hope to survive 7 years to reap the full benefit). Gifts into trust after this date could give rise to an immediate 10% (50% of 20%) IHT charge on any value above the £1 million threshold;
  5. Business owners who are married or in a civil partnership should ensure that each of them own shares worth a minimum of £1million so that both can benefit from the full £1million allowance;
  6. Spread share ownership across different family members. Each member can benefit from their own £1 million allowance;
  7. Consider new share classes to shift future growth in value to the next generation whilst allowing the retention of control;
  8. Review current Wills to ensure that they are correctly drafted and that the full reliefs are available. If the £1 million allowance on first death is not fully utilised, it will be lost altogether, causing more IHT to be paid than is necessary; and
  9. Consider how the IHT bill will be funded (i.e. through life insurance, staged share buy-backs or ensuring sufficient cash reserves within the business or estate).

Next Steps

The BPR changes are complex, so being proactive and seeking expert guidance in advance of 6 April 2026 is key to mitigating the IHT impact and ensuring a smoother transition of your estate to the next generation.

The Private Wealth team at JMW Solicitors have a wealth of experience when it comes to advising on all forms of tax mitigation, so contact a member of the team if you are considering your estate planning needs.

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