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Starting from 6 April 2026, there will be important changes to Business Property Relief (BPR). These changes will reduce the amount of business property that can receive full 100% relief from inheritance tax (IHT). Business owners, regardless of the size of their business, should review their estate planning as soon as possible to avoid incurring additional tax costs.
The Old BPR Rules: Unlimited Relief
Historically, BPR allowed 100% IHT relief on the full value of qualifying business assets, regardless of the size of the estate. Whether a business was valued at £500,000 or £5 million, all of it could be passed on free of IHT on death or through qualifying lifetime transfers. This generous relief was designed to prevent family businesses from being sold off to pay tax liabilities.
What’s Changing in April 2026
Under the new regime:
- Only the first £1 million of qualifying business or agricultural property will attract 100% BPR.
- The excess above this limit will receive 50% relief, effectively creating a 20% IHT liability on that portion.
- The new cap refreshes every seven years, similar to the nil-rate band.
- The £1 million cap is not transferable between spouses or civil partners.
- Trusts will be subject to the same cap, with a £1 million limit per settlor applying across all settlements created after 30 October 2024.
Implications for Wills and Estate Planning
For many married business owners, wills are set up to pass everything to the surviving spouse, taking advantage of the spousal exemption. However, under the new rules, this approach can result in wasted BPR relief.
If the full estate passes tax-free to a spouse on the first death, the BPR relief is unused. On the second death, only one £1 million allowance is available, and the excess is taxed.
Action point: Update wills to include provisions that direct qualifying BPR assets—up to the £1 million limit—to chargeable beneficiaries instead of spouses, ensuring the full relief is used.
Lifetime Gifting as a Strategic Option
Gifts of BPR-qualifying business assets made during one’s lifetime remain potentially exempt transfers (PETs), provided the donor survives seven years. These gifts do not use the £1 million BPR cap, allowing unlimited gifting with full 100% relief if timed correctly.
Example: Two business partners each own a £2 million share in a company. By gifting £1 million worth of shares to non-exempt beneficiaries today and surviving seven years, they reduce their estate to £1 million each, preserving the full 100% BPR on death and avoiding IHT on the excess.
Using Trusts Cautiously
Trusts created after 30 October 2024 will only have access to a single £1 million BPR allowance per settlor. This affects lifetime planning strategies and the use of discretionary trusts. Exceeding the cap may trigger exit or periodic charges based on the reduced relief.
Recommendation: Review any existing or planned trusts. If multiple trusts are used, ensure they fall within the scope of available allowances and consider alternative approaches for holding business assets.
Case Study: The Cost of Inaction
Scenario: Bill and Ben are civil partners who own Flowerpot Ltd, which is worth £2 million. When Bill dies, he leaves his shares to Ben without incurring any tax, thanks to the spousal exemption. Later, Ben dies with the full shareholding of £2 million.
- Only £1 million qualifies for 100% relief.
- The remaining £1 million qualifies for 50% relief.
- Result: £200,000 IHT bill (40% of £500,000 taxable value).
Alternative: Had Bill redirected £1 million worth of shares to a non-spouse beneficiary under his will, both he and Ben could use their full £1 million relief each, avoiding the tax entirely.
Other Planning Options
- Use of Instruments of Variation: If wills are not updated in time, a variation can be executed within two years of death to redirect assets and optimise relief.
- Review business valuations regularly to Ensure That asset values are accurately assessed and that estate planning strategies reflect current figures.
- Coordinate gifting and will planning: Ensure that BPR assets are distributed strategically in both lifetime and death scenarios.
Next Steps: The April 2026 changes to BPR are significant and will affect a broad range of business owners, not just the ultra-wealthy. The key steps to take include:
- Reviewing and updating wills to avoid wasting BPR on spousal exemptions.
- Making strategic lifetime gifts before the changes take effect.
- Assessing existing trusts and their exposure to the £1 million limit.
- Considering the use of variations post-death, where applicable.
While the reforms to BPR may seem targeted at high-net-worth individuals, they impact a wide range of business owners. Failing to act could result in substantial, avoidable tax bills. The earlier estate planning is reviewed, the more flexibility exists to restructure affairs, reduce liabilities, and ensure your business legacy is preserved efficiently for the next generation.