Overview of Business Property Relief (BPR)
Business Property Relief (BPR) is an inheritance tax relief that reduces the taxable value of qualifying business assets, potentially by 100% or 50%. Currently, many business interests – such as a trading business or unquoted company shares – can qualify for BPR, effectively reducing (or even eliminating) their value for Inheritance Tax (IHT) purposes.
For example, under current rules, an unquoted family business that meets the conditions can be passed on death with no IHT to pay, thanks to 100% BPR. BPR has traditionally allowed business owners who worked hard to build a family business to pass it to the next generation without a 40% IHT charge.
To benefit from BPR, certain conditions must be met:
- The asset must be “relevant business property.” This includes a business or interest in a business (e.g. a partnership share) and shares in an unlisted company (company shares not listed on a recognised stock exchange). Assets like controlling shareholdings in fully-listed companies or land/machinery used in a business qualify at 50%. (Note: Prior to the upcoming changes, shares on the Alternative Investment Market (AIM) and other exchanges not officially listed were treated as unlisted and qualified for 100% BPR. This will change, as discussed below.)
- The asset must satisfy the length of ownership requirement – generally owned for at least 2 years before the transfer (or as a replacement of qualifying property held for 2+ years).
- The business must not be engaged “wholly or mainly” in excluded activities such as dealing in securities or land, or making or holding investments. In other words, it must be a genuine trading business (more than 50% trading activity) for the relief to apply.
- None of the automatic exclusions apply.
When these conditions are met, BPR can be extremely valuable. Qualifying assets are reduced in value for IHT by 100% or 50%, meaning they can be passed on largely tax-free.
However, important changes to BPR have been announced that will significantly modify how the relief works going forward. These reforms – confirmed by HMRC and the government – are very relevant to business owners and their estate planning.
Changes to BPR from April 2026
Significant reforms to BPR (and its counterpart Agricultural Property Relief, APR) were unveiled in the Autumn Budget 2024 and are now confirmed to take effect from 6 April 2026. The key changes are as follows:
1. Introduction of a £1 million BPR Allowance:
Each individual will have a £1 million allowance for 100% relief on qualifying business (and agricultural) property in their estate. 100% BPR will apply only to the first £1 million of combined qualifying business property value. Any value above £1 million will only receive 50% relief.
In other words, the unlimited 100% relief is ending – amounts beyond the £1 million cap will now be half-relieved and therefore half-exposed to IHT. According to HM Treasury:
“the 100% rate of relief will continue for the first £1 million of combined agricultural and business property… and it will be 50% thereafter”.
This reform will apply to deaths and lifetime transfers on or after 6 April 2026.
No spousal transfer of BPR allowance:
Unlike the general nil-rate band which can pass to a surviving spouse, the new £1 million BPR allowance cannot be transferred to a spouse or civil partner. Each individual has their own cap. If the first spouse’s allowance is unused (because, for example, they left the business entirely to the survivor), it is essentially lost – the survivor will still only have their own £1 million limit. (This makes it crucial to use the first spouse’s BPR allowance with careful estate planning, as discussed later.)
The £1 million allowance will, however, refresh every seven years for lifetime gifting purposes – similar to how the £325,000 nil-rate band can be used again after seven years. This means making lifetime transfers of qualifying business assets could reset the allowance after 7 years, allowing further tax-free transfers.
2. Reduction of relief for AIM and other “not listed” shares:
Under current rules, shares traded on markets like AIM (Alternative Investment Market) qualify as unquoted and get 100% BPR.
From April 2026, shares traded on recognised stock exchanges that are designated as “not listed” (such as AIM) will only qualify for 50% BPR, not 100%.
(Notably, this 50% treatment for AIM shares will not consume any of the £1 million 100% relief allowance, since those shares no longer qualify for 100% relief at all.)
Likewise, shareholdings on foreign exchanges that are not recognised exchanges will be limited to 50% relief. The traditional rule allowing 50% BPR on controlling holdings of fully-listed company shares remains in place – there is still relief for major shareholdings on main exchanges (unchanged at 50%). But the big change is that many investments which families used for 100% BPR (like AIM portfolios) will drop to 50% relief going forward.
3. BPR on trust assets – £1 million cap for trusts:
Trusts that hold qualifying business or agricultural assets will also be subject to a £1 million cap on 100% relief (with value above that getting 50%). The government has confirmed a £1 million allowance will apply to the combined value of relievable business/agricultural property in trusts as well (gov.uk).
The rules here are complex: broadly, existing trusts (in place before the Budget announcement on 30 October 2024) each get their own £1 million 100% relief allowance for assets they already held. New trusts or additions after that date will have to share a single £1 million allowance per settlor (split among any new trusts that person sets up).
In practice, this means the first £1 million of business assets settled by a person into trust can still get 100% relief, but any additional trusts or value settled will only get 50%. Trustees will need to monitor their use of this allowance over time. Assets leaving a trust (appointments to beneficiaries) after 2026 will also be taxed based on unrelieved values, with the trust’s allowance offsetting some value – adding further complexity.
4. Instalment payment option extended:
Currently, certain business assets qualify for payment of inheritance tax in ten annual instalments (interest-free) rather than as a lump sum (for example, shares in a business can use this when the estate lacks liquidity).
Under the new rules, the option to pay IHT over 10 years interest-free is being extended to all assets that qualify for BPR or APR (gov.uk). This is a helpful change – it means even if a business now only gets 50% relief (or is partially taxed due to the cap), any resulting IHT on those business assets can be spread out over ten years without interest. This should ease liquidity pressures on families inheriting businesses who face an IHT bill.
5. Index-linking of the £1 million cap:
One piece of good news is that the £1,000,000 BPR/APR allowance will increase with inflation (CPI) over time. The legislation provides that from 6 April 2030, the £1m allowance will be index-linked in line with the Consumer Prices Index. This adjustment is meant to prevent the value from eroding over decades. Still, any such increases are likely to be modest – the key point is that the £1m cap is fixed until 2030.
(Additionally, a related IHT change starting 6 April 2027 will bring most untaxed pension funds into the taxable estate on death, removing their current inheritance tax-free status. Crucially, BPR and APR will not apply to those pension assets. Business owners can no longer rely on holding business assets inside a pension to escape IHT – both the pension inclusion and the disallowance of BPR on them will ensure they are taxed. This is separate from BPR on businesses owned personally, but it closes a potential avenue where BPR might have been claimed on death benefits.)
Are these changes actually going ahead?
Yes – barring any unforeseen political reversals, these reforms are slated to take effect from 6 April 2026. The Chancellor’s announcement was made late 2024. The draft Finance Bill 2025–26 clauses were published 21 July 2025; an 8‑week technical consultation (on trusts) runs to 15 September 2025 and commencement 6 April 2026 remains the plan. Business owners and advisors now consider these changes virtually certain, and are planning accordingly.
Impact of the reforms – who will be affected?
These BPR changes represent the most significant tightening of the relief in over 30 years. They are very worrying from an estate planning perspective for owners of larger businesses. In effect, the government is pulling back a “safety net” that many family businesses have relied upon to avoid IHT.
Business owners with modest estates may not feel any difference. In fact, the Treasury has stated that the majority of estates that claim BPR or APR will be unaffected because their qualifying assets are below the £1m allowance (gov.uk). (In 2021-22, about 87% of estates claiming BPR had under £1m of qualifying business property (gov.uk.) For those families, 100% relief will continue to cover all their business assets as before. The reforms are aimed at the minority of cases where very large relief claims were being made – HMRC data showed a small number of wealthy estates were claiming disproportionately large tax exemptions (gov.uk).
However, any business owner whose interest in a business is worth more than £1 million will face a new potential IHT liability where none existed before. Even a family business only slightly above the cap will generate some taxable value.
For example:
Consider an owner leaving a £2 million unquoted trading company to their children (and assume other assets already use the general nil-rate bands). Under current rules (100% BPR), that £2m business would pass completely free of IHT.
After April 2026, only £1m of the business value would be fully exempt; the remaining £1m would get 50% relief, meaning £500,000 becomes taxable. That could result in an IHT bill of up to £200,000 (40% of £500k) – a very significant new tax cost that the family must fund. If the business value is larger, the tax exposure grows proportionally – and could force difficult decisions if liquid funds aren’t available. (Even if unused nil-rate band or residence band is available to offset some of that £500k, the fact remains that a portion of the business is no longer sheltered.)
Simply put, owners of successful businesses may no longer be able to pass on the full value of the enterprise tax-free. Families will need to plan for this and potentially reserve funds to cover the tax or take other actions (see below).
The example above aligns with HMRC’s projections: roughly 2,000 estates per year (starting 2026–27) are expected to be affected by the BPR/APR reforms, incurring higher IHT as a result. These will primarily be estates with very high business or farm values. In particular, a significant share hold AIM-listed shares or other “not listed” shares which will only get 50% relief (instead of 100%) with these changes, potentially creating tax where previously there was none (gov.uk). Many elderly investors had purchased AIM stocks as an IHT mitigation strategy; those individuals (and their heirs) must now recognise that only half the value of such portfolios will be protected from inheritance tax going forward.
Another impact is on surviving spouses in family business situations. Previously, if one spouse died leaving a 100% BPR-qualifying business to the survivor, no IHT was due (spousal exemption), and on the survivor’s death the business would still qualify for full BPR – effectively avoiding tax on both deaths. Under the new regime, this strategy won’t work beyond the £1m cap. If a widow(er) dies with a business worth, say, £2m that they inherited from their spouse, that estate can only shield £1m fully; the other half of the business ( £1m value ) gets 50% relief, leaving £500k taxable. The first spouse’s death wasted an opportunity to use their own £1m BPR allowance (because everything went to the survivor spouse tax-free but also relief-free). This is why estate planners are now warning that allowing BPR assets to pass outright to a spouse could lead to a larger IHT bill on the second death. The new rules encourage using each spouse’s £1m allowance, rather than deferring all tax to the second death.
What can business owners do now? – planning in light of BPR changes
With these changes on the horizon, business owners and their advisors are actively reviewing estate plans. The good news is that there is still a window of time before April 2026 to take action and there are some possible planning steps to mitigate the impact of the BPR reforms.
The following are some possible strategies but as for all content on this website, this is general information and you should take professional advice on your own circumstances:
Review (and revise) Wills to use each spouse’s £1m allowance:
If you are married or in a civil partnership, it’s crucial that your estate plan doesn’t waste the first-to-die’s BPR allowance. Traditionally, many couples left the entire business to the surviving spouse (claiming spouse exemption, and deferring IHT). Now, that approach could forfeit the deceased’s own £1m BPR capacity.
Couples may instead consider directing up to £1 million of qualifying business assets to children or into a discretionary trust on the first death, rather than all to the spouse. By doing so, the deceased spouse’s estate can claim 100% BPR on that portion (sheltering it entirely from tax). The surviving spouse still benefits (as a discretionary trust beneficiary or via other assets) but you’ve utilised both partners’ relief allowances over time.
Example: A husband and wife each own 50% of a company worth £2m total. If the husband dies in 2027, his Will could leave his £1m share into a family trust or directly to the children (qualifying for BPR and using his £1m allowance fully). The remaining business shares go to the wife. On the wife’s later death, her own £1m of shares also get full BPR. In total, the £2m business passes tax-free. If instead he had left his shares to his wife, she would have £2m shares but only her single £1m allowance – exposing half the value to IHT on her death.
Consider making lifetime gifts or transfers before April 2026:
There is a limited opportunity to act before the rules tighten. Transfers of business assets that qualify for BPR, if done now (under the current rules), can potentially still benefit from 100% relief with no cap. For example, you might settle some shares into a trust for your children in 2025 and enjoy full BPR on the transfer (meaning no lifetime IHT charge), whereas the same transfer in 2026 would be only partly relieved. By locking in today’s rules, future growth on those assets can also be kept outside your estate.
Important: The government has anticipated last-minute planning, so there are anti-avoidance provisions for gifts made between 30 October 2024 and 5 April 2026. Such gifts initially benefit from full relief, but if the donor dies on or after 6 April 2026 within seven years of the gift, the new rules will apply retroactively to that transfer. In other words, you need to survive seven years for a late-2024/2025 gift to fully escape the new cap; otherwise the excess value may be pulled back into your estate calculation under the 50% regime. This isn’t fundamentally different from normal gift rules (which require a 7-year survival to be free of IHT), but it means you cannot simply do a deathbed transfer before April 2026 and expect to completely circumvent the cap.
If you are in a position to start transferring some business value out of your estate (while retaining control through trusts or through gifting non-voting shares, for example), doing so before the April 2026 deadline could save substantial tax in the long run.
Remember also that each individual still has a £325k nil-rate band in addition to BPR – for example, a couple could settle around £2.65 million of business assets into trust, tax-free, every seven years (using two BPR allowances of £1m + two NRBs of £325k). This kind of planning can gradually move a large business out of the taxable estate. Be mindful of retaining enough control/income and the business implications of any transfers. Also ensure compliance with the 2-year ownership rule – e.g. if you plan to gift to a trust or to your heirs, you must have owned the shares for at least 2 years beforehand, or the relief won’t apply.
Use both spouses’ allowances with lifetime transfers:
In cases where one spouse is the primary business owner, consider sharing ownership so that both partners can utilise a £1m allowance (both in life and at death). For instance, an owner could gift some shares to their spouse now (inter-spouse gifts are tax-free and do not trigger any IHT or capital gains tax in the UK).
Once the recipient spouse has owned those shares for 2+ years, they independently qualify for BPR. This opens up the ability for each spouse to gift or settle £1m of shares into trust (potentially every 7 years) without tax, doubling the amount that can be removed from the estate with full relief. By staggering gifts, a couple might transfer significant value over time entirely tax-free.
Ensure your business qualifies for BPR :
All the planning in the world won’t help if your company fails to qualify as a relevant business property. Review the company’s activities and assets to be confident it is still mainly trading and not inadvertently an investment vehicle.
HMRC will look at factors like turnover, balance sheet, and how surplus cash is used. If your company has accumulated large investment portfolios or cash not needed for the business, consider purging or restructuring those (for instance, transferring excess cash to a holding company or distributing it) so that the trading purpose remains predominant.
Also, review any partnership or shareholder agreements for buy-back clauses on death – as a binding contract for sale at death can nullify BPR. Going forward, with only partial relief on larger estates, every bit of relief counts, so you don’t want to accidentally disqualify the business entirely.
Convert loans or hybrid capital to shares:
It remains as important as ever to hold value in a BPR-qualifying form. Notably, if the company owes you money (a director’s loan account or shareholder loan), that debt will not qualify for BPR – it’s just a cash asset in your estate. In contrast, shares in the company (or partnership equity) do qualify.
Consider converting substantial loan balances or IOUs into equity. This can be done via new share issuance or capitalisation of the loan. Past cases (e.g. Vinton v HMRC (2008)) have shown that even a last-minute conversion of a £300k director loan into shares allowed those shares to qualify for BPR on death (the newly issued shares were treated as part of the existing shareholding and met the 2-year rule as a “replacement” of old shares).
While it’s never a great idea to cut it so close to the wire, the principle is clear: asset type matters. By holding wealth as business shares rather than as a personal IOU or cash, you ensure it can potentially get the 100% or 50% relief. Of course, you need to work with your accountant and be aware of possible tax consequences (a loan waiver or conversion might have income tax or stamp duty implications in some cases), but often there are straightforward ways to exchange debt for equity.
Review any SIPP or SSAS arrangements
From 6 April 2027, most unused pension funds and pension death benefits will be included in the estate for inheritance tax. And the new rules make clear that property counted via the pension cannot be treated as business or agricultural property for relief purposes. That means if your SIPP/SSAS owns your trading premises – or holds shares in your family trading company – BPR/APR won’t apply to those pension‑held assets. Subject to the usual exemptions and bands, they’ll be taxed in full at up to 40%. Spouse and charity exemptions still apply, and death‑in‑service lump sums remain outside the IHT net, but BPR/APR relief itself cannot shelter assets inside a pension. This is a material change and needs urgent review.
Example: If your SIPP holds a warehouse worth £800,000 that your company rents, from 6 April 2027 the full £800,000 will sit in your estate for IHT with no BPR. If instead you owned the building personally and your trading company used it, it would usually qualify for 50% BPR (so only £400,000 counts for IHT). Ignoring other bands/exemptions, that’s a £160,000 higher IHT bill with the asset in the pension (40% × the extra £400,000).
There are various options to mitigate the changes: for example, keep as is but fund the future IHT (e.g. life cover in trust, see below), or restructure ownership (noting SDLT/VAT/transaction costs and pension rules on connected‑party sales). Any move should be at arm’s length and professionally valued.
Plan for liquidity – life insurance and other measures:
If your estate is likely to face an IHT bill under the new rules, make sure your heirs won’t be forced to sell the business to pay it. One way to provide liquidity is through life insurance designated to cover the inheritance tax. You can purchase a life policy (joint life second death for a couple, or single life) that would pay out enough to handle the tax on your business shares. Such a policy is typically written in trust so that it pays to your beneficiaries outside the estate, in time to meet the tax bill. This strategy is especially pertinent now that even keeping the business in the family may incur tax on the margins.
Of course, the instalment payment option (discussed above) eases short-term pressure, but it’s still 10 annual payments that must come from somewhere (ideally from the business’s dividends or other resources). Life insurance can effectively provide the cash injection needed, allowing the business to carry on without fire-sale of assets. This is one to discuss with your financial advisor or insurance broker, weighing the premiums against the potential 40% tax on your business value.
Policies need to be written in trust to be outside your estate and timed to fund the tax due. Alternative strategies might include setting aside an emergency fund, or arranging for the company to redeem some shares after your death to provide cash to the estate.
Utilise other gifting and reliefs:
With BPR becoming capped, it could be time to make use of other estate planning reliefs such as gifting more aggressively. Regular gifting out of surplus income is one often-overlooked exemption that can remove wealth from your estate free of IHT – if your trading company pays you substantial dividends or salary that you don’t need to maintain your lifestyle, you can gift that excess cash to family as you go, and it will be immediately exempt (subject to meeting the HMRC criteria for normal expenditure out of income). Over several years, this can siphon off a lot of value completely outside the IHT net – reducing the overall estate that might be subject to tax.
Also consider the timing of passing on ownership: if children are ready to take over the business, gifting shares to them outright (outside of trust) begins the 7-year clock as a Potentially Exempt Transfer – after 7 years, the gift is fully outside your estate (BPR could cover the risk if you don’t survive 7 years, as long as the business stays qualifying). The new BPR allowance refresh every 7 years means you could theoretically give £1m of business assets every 7 years to your heirs without IHT (provided you live 7 years each time).
Trusts are often used for asset protection and control, but note that even gifts directly to individuals benefit from BPR (if you die within 7 years, BPR can apply on that gift at death just as it would if you still owned it – potentially reducing or eliminating any tax on the failed PET). Every £1 of value you can transfer out while you’re alive (and healthy) is potentially 40p saved for your family.
Reevaluate investment strategies for IHT:
Many people invested in AIM shares, EIS funds, or other unquoted trading companies purely for the IHT relief. With the AIM route dropping to 50% relief, you may want to reconsider those holdings. It could be worth exploring alternatives such as Business Relief qualifying unincorporated trades or asset-backed investments that might still qualify (though any such strategy should be undertaken with care and professional advice, as investment risk is significant).
Some may pivot to using trusts or family limited partnerships funded by surplus cash as a way to shift value out of the estate (since the direct investment in AIM shares is now less effective). Others might consider charitable giving or other reliefs (like conditional exemption for heritage assets, or agricultural property if relevant) to complement the reduced BPR.
Plan business succession:
Some owners intend to sell their business during their lifetime or have their estate sell it after death, expecting the cash proceeds to then be distributed. Be aware that once the business is sold, BPR is lost entirely – cash or investments derived from the sale will not qualify at all.
Under the new regime, keeping the business until death at least yields a 50% relief above £1m; selling it (and holding cash) yields 0% relief. The difference is stark – a post-2026 sale of a £5m business would turn an asset that could have been 50% relieved into one fully taxable. Therefore, if you’re on the fence about when to sell, take the tax implications into account.
One strategy if a sale is imminent (and desirable) is to do some pre-sale gifting: for example, place a chunk of shares into a trust or give to children before the sale completes, while BPR can still cover those shares. Then, when the sale happens, the trust or children receive sale proceeds that are outside your estate (or in the trust) – effectively crystallising the BPR benefit on that portion. The remaining sale proceeds you retain will be in your estate and subject to IHT someday, but at least you shifted a portion out under the relief.
If you plan to retain the business within the family long-term, then focus on the other strategies above (trusts, insurance, gradual transfers) to ensure continuity without undue tax burden.
Sources:
- HM Treasury – “Summary of reforms to agricultural property relief and business property relief” (30 Oct 2024) gov.uk
- HMRC Policy Paper – “Agricultural property relief and business property relief reforms” (21 July 2025) gov.uk
Jennifer Wiss-Carline is a practising Solicitor regulated by the SRA and a Chartered Legal Executive (FCILEx), bringing over two decades of experience to her practice. Specialising primarily in Private Client law, Jennifer expertly handles matters including Wills, Inheritance Tax and Estate planning, Lasting Powers of Attorney for individuals and businesses, Deputyship Orders and more.
