Proposed changes to Business Relief (BR) and Agricultural Relief (AR) are due to come into force from 6 April 2026.
The changes to BR, formerly known as Business Property Relief (BPR), are likely to impact you as a business owner in particular.
Previously, you could claim 100% BR on qualifying assets, removing them from your estate for Inheritance Tax (IHT) purposes, but this will no longer be the case once the changes come into play.
Here’s what you need to know about the upcoming changes, and three actions you could take to mitigate their potential effects.
A new £2.5 million threshold is being introduced for full Business Relief on qualifying assets
In 2025/26, as a business owner, you can pass on or sell qualifying assets and claim 100% BR on them, effectively removing these assets from your estate and keeping them out of the scope of IHT.
You can qualify for BR if you own:
- A trading business
- An interest in a partnership
- Shares in an unlisted trading company
- Land, buildings, or machinery that are used in the business.
The government had proposed introducing a cap on this relief, with 100% applying to the first £1 million in qualifying assets and 50% thereafter. However, after a significant backlash, this cap has now been increased to £2.5 million, effective from 6 April 2026.
Essentially, qualifying business assets that go over the £2.5 million threshold will be included in your estate and potentially attract IHT, although at a rate of 20% instead of the usual 40%.
However, it is worth noting that the cap applies per individual and is transferable between spouses, which means a couple may still be able to claim 100% BR on up to £5 million in qualifying assets.
Strategic financial planning upfront could help to preserve Business Relief, protect your wealth from Inheritance Tax, or make provisions to cover any likely bill
In terms of what this means for you as a business owner, the answer lies in effective, strategic planning.
This is particularly important to protect your loved ones from potentially facing an unexpected or larger-than-expected IHT bill when you die.
The proposed changes mean you may need to shift how you think about BR. Whereas before it may have been enough to understand which of your assets qualify, you now need to consider the potential IHT exposure, and what you could do about it.
Here are three ways to either preserve your BR or use smart estate planning to mitigate any potential IHT.
1. Lifetime gifting
Transferring some business assets to another person during your lifetime could remove these from your taxable estate. These could be in the form of company shares or an interest in a partnership, and are known as potentially exempt transfers (PETs).
Remember: spouses and civil partners are exempt from IHT, so gifting business assets to them could help you effectively “double” the BR available to you.
When making PETs to anyone else, if you survive for seven years after making the gift, they are fully exempt from your estate for IHT purposes. If you die within seven years, the gift may be eligible for taper relief on any IHT due, depending on how many years have elapsed since you made the gift.
You also have a £3,000 annual exemption, meaning that every year you can gift up to £3,000 of assets or cash to another person, or split this amount across several recipients, without the gift ever being liable for IHT.
In practical terms, the tax-efficient lifetime gifting of business assets could help you gradually transfer their ownership to a trusted family member or business partner. Doing so may bring your business holdings under the BR threshold of £2.5 million, potentially keeping future IHT at bay.
2. Trusts
Transferring some of your assets into a trust is another way of removing them from your estate. From here, they can be either held in the trust or sold, with the trust retaining the proceeds.
While assets placed in trust would no longer qualify for BR, this wealth would also no longer form part of your estate – this is one of many ways you could look to reduce IHT for your loved ones.
From April 2026, the rules surrounding trusts holding BR-eligible assets are also changing slightly. Most assets held in trust are subject to a 10-year review by HMRC, which can trigger what’s known as a “periodic IHT charge” of up to 6%.
Business assets will now be included in this review, although the periodic charge will be capped at 3%. So, although these assets won’t be completely outside the scope of IHT, they will be subject to a much lower rate than if they were in your estate.
Trusts are complex, and it’s important to set them up in exactly the right way to maximise their efficiency. We always recommend taking expert advice before proceeding, and we’ll be happy to help you.
3. Life insurance
While taking out life insurance won’t help you retain any BR, it can help to pay off any IHT incurred as a result of the shifting thresholds.
Using a life insurance payout to cover IHT could offer your loved ones some peace of mind that they have the funds to pay the bill when the time comes.
Importantly, choosing whole of life cover and writing this policy into a trust helps to keep a future payout outside your estate, leaving these funds available for paying the IHT bill. Not writing it into a trust means that the payout would go into your estate and be included in its overall value, so this really is a crucial step.
Get in touch
Every business is different, and this means the approach to managing BR (or AR if you work in agriculture) and mitigating IHT will be different for everyone. We’ll meet you where you are, helping you to find the best ways to navigate these new thresholds and understand any potential future implications.
Please email us at info@servoprivatewealth.com or call 01444 715200 to find out more.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, tax planning, or trusts.
Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief.
Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.
Approved by Best Practice IFA Group Limited on 16/02/2026.