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6th April 2026 is a significant date in the world of inheritance tax (“IHT”) and business property relief (“BRP”). It has been widely documented since the 2024 Autumn Budget that major reforms were proposed to BPR legislation, which has now been formalised after the UK government released the draft Finance Bill 2025/26 legislation delivering new tax proposals.
What is BPR?
Where an individual owns a business or a share of a business, it is included in their estate for IHT purposes. For years, BPR has been a useful tool in reducing the IHT liability on an individual’s estate. At present, BPR is available at the rate of 100% on:
A business or interest in a business including sole traders, interest in partnerships or LLPs; and
Shares in an unlisted company or shares listed on an alternative stock exchange.
This generous relief has been welcome by business owners. If an individual owns a business valued at £5 million and other personal assets (properties, investments and cash) worth £3 million, then on their death they could leave their business to their children with no liability to IHT with only assets outside of the business being subject to IHT. This IHT liability would be approximately £1,070,000 (after deducting the IHT nil-rate band of £325,000).
In addition to this, a 50% relief applies to:
Shares or securities giving control of quoted companies; and
Land, buildings or machinery individually owned but used by a company or partnership in service of the business.
To be eligible for BPR, the individual must have owned the business or asset used for a qualifying period of two years prior to death. The business must also be wholly or mainly trading, so no involvement in investment activities.
What is changing from 6th April 2026?
The key change sees the introduction of a cap on the 100% relief of £1 million. Any assets exceeding the £1 million threshold will be subject to IHT at a rate of 50%.
Considering the above scenario, this means the first £1 million of the individuals’ business can be left free of IHT. The remaining £4 million would receive the reduced 50% relief (resulting in an effective 20% IHT charge on the remaining value) potentially meaning an additional IHT liability of £800,000 in addition to the £1,070,000.
Until now, businesses have been able to continue trading on the death of the owner without the worry of exposure to IHT. From 6th April 2026 this will be a concern for business owners who may have to look at selling their business, or parts of it in order to fund the IHT liability despite there being an option to pay this over a 10-year period with added interest.
Other key changes include:
A reduction of BPR for unlisted shares from 100% to 50% – essentially this includes shares not listed on recognised stock exchanges, such as the Alternative Investment Market or Enterprise Investment Scheme and other similar markets in all cases irrespective of the total value invested.
Existing trusts with a value of more than £1 million of business property created before 30th October 2024 will also be subject to the new BPR legislation.
Ultimately, the proposed changes will completely change the scope of how business owners can pass on their business assets to the next generation which up until now, have been free of IHT. Whilst the long-lasting effects and public reaction are uncertain, in the coming years, it is expected to see an increase of the number of larger estates which may now be exposed to IHT.
How can I prepare?
The draft legislation is currently going through the technical consultation phase ending on 15th September 2025, but it seems likely the fundamental changes that have been proposed will be implemented in less than a years’ time.
HMRC have said ‘the purpose of the reforms is to raise revenue to ensure the sustainability of the public finances and to fund public services, whilst continuing to support businesses by targeting the reliefs to make them fairer’.
Despite this rationale, the proposed reforms are still an unwelcome development for business owners. By taking a proactive approach and reviewing their current circumstances now, business owners can look to implement measures to mitigate their exposure to IHT moving forward and planning for the future as follows:
Seek legal and tax advice
Most business owners already consult a solicitor, accountant and financial advisor. At the earliest opportunity, discussions should be had with them to determine how the changes will affect the business owner and if any action could be taken to minimise the IHT implications.
Lifetime Gifting
There are no proposed changes to the IHT legislation on making lifetime gifts, the key principle being that surviving seven years from the date of any gift means that asset falls outside of an individual’s estate for IHT purpose. Therefore, business owners can look to gift part/s of the business during their lifetime to limit the IHT exposure of the business.
However, this does raise further issues such as capital gains tax which is a lifetime tax that could be applicable on a gift of a business. Additionally, some business owners may not be comfortable dividing up ownership whilst they are alive and having other family members involved in the day to day running of the business and assuming an element of control over this.
Review of Wills and succession planning
The £1 million cap is not planned to be transferable between spouses as is the position with the IHT nil-rate band of £325,000 which can be transferred to the estate of the second spouse to die.
Therefore, business owners should look to use the £1 million cap effectively and consider the involvement of their spouse to effectively double up on the new BRP allowance. For example, civil partners can each pass on £1 million on their respective deaths to the next generation free of IHT.
Business owners should consider reviewing their current Wills to ensure their estate is distributed in an IHT efficient manner.
Different approaches can be implemented such as the use of trusts or family investment companies. These can help the business owner retain control of the business but have the advantage of being outside of their estate for IHT purposes. Different IHT charges would be applicable to such structures but overall, this could still achieve a more IHT efficient result.
Life Insurance
It may be an option to take out life insurance to cover the IHT liability, or to extend the current level of cover to consider the additional IHT payable on the business assets. Typically, the insurance proceeds would be held on trust for the benefit of nominated beneficiaries (e.g. spouse and children) and would be paid to them outside of the individual’s estate for IHT purposes.
This would provide the business owner’s family with an additional cash fund that could be used towards the IHT liability. It would be preferable to obtain such a policy (or policies) as young as possible and provided the business owner is in good health, this can result in more beneficial premium rates.
By Zoe Pearse
If you have any concerns regarding the succession of your estate or would like further information regarding the implications of the proposed changes to BPR legislation, please contact our Private Client team at Seddons GSC on [email protected]