Legal News | 6.11.25
Countdown to Business Property Relief Changes
Business Property Relief and inheritance tax
New rules regarding Business Property Relief (or “BPR”) from inheritance tax (IHT) come into effect from 6 April 2026. Business owners holding qualifying business property should be mindful of the upcoming changes and consider their options before they take effect.
BPR is a relief from IHT on relevant business property. The relief applies at a rate of either 100% or 50% (assuming certain conditions are satisfied and depending on the type of property).
Currently, BPR at 100% may apply to relevant business property without limit. However, from 6 April 2026, individuals will only be able to claim BPR on their relevant business property at the 100% rate up to a value of £1m (which will be shared with assets qualifying for agricultural property relief (“APR”) at 100%). The relief will then be reduced to 50%, or an effective IHT rate of 20%, for any value over and above the £1m threshold.
What might business owners consider doing prior to 6 April 2026?
Prior to April 2026, it may be possible to take advantage of the current transitional rules to mitigate future IHT exposure by:
| Transitional rules to mitigate IHT exposure: | |
|---|---|
| Making gifts of business property to family members | Qualifying business property can be gifted by the business owner (the “donor”) to adult family members with no immediate IHT charge. Under current rules, if the donor survives 7 years, the gift to the individual will be IHT free, and the donor will retain their full BPR allowance under the new rules. If the donor dies within 7 years of making the gift (and after April 2026), then the ‘new’ BPR rules will apply (i.e. subject to the £1m IHT cap). |
| Making gifts of business property to a family trust | Qualifying business property can also be gifted to a family trust. Under the current rules, it is possible to transfer an unlimited value of eligible BPR assets to a trust, IHT free. After 6 April 2026, this will be restricted and only the first £1m attract full BPR. Under the new rules, the trust itself will have a £1m allowance to use against its own IHT charges relating to relevant business property (which will occur on its ten-year anniversary and/or when assets leave the trust). If relevant business property is gifted by the same person to multiple trusts between now and 6 April 2026, that £1m allowance will be allocated across the trusts successively. If the business owner survives 7 years, the gift to the trust will be IHT free, and they will retain their full BPR allowance under the new rules. However, it should be noted that if they die within seven years of the transfer, the IHT on their death (after 5 April 2026) will be re-calculated using the ‘new’ BPR rules. |
| Doing nothing | This may be a sensible option for individuals with smaller companies or businesses who are currently unaffected by the changes and may not be affected by the changes in the future. The key is to take advice now to ensure any decision to do nothing is well-informed and that the downsides are understood. |
It is also imperative to consider other tax implications, including capital gains tax and the availability of ‘holdover relief’ when considering any of the above options.
With just over 150 days (and a Budget to navigate before then), it is important for impacted individuals to consider their options as soon as possible. Please speak to the Private Client team at Wansbroughs on wealth@wansbroughs.com if you need advice.
