Legacy planning is a key concern for business owners. It takes hard work and dedication to build a successful business, and you may want to pass the company on to your beneficiaries so it continues providing for your family when you are gone.
However, upcoming changes to Inheritance Tax (IHT) rules, specifically those related to Business Relief (BR), could make this more difficult.
Read on to learn everything you need to know about BR changes taking effect from 6 April 2026.
Your beneficiaries could pay Inheritance Tax on a portion of your estate
When you pass your estate to your loved ones, they may pay IHT on a portion of your wealth.
The executor of your will must add up the total value of your taxable estate, including:
- Properties
- Investments
- Cash savings
- Personal possessions
- Pensions (from April 2027).
They then apply the “nil-rate bands”, which are an IHT-free allowance you may benefit from. As of 2025/26, the standard nil-rate band is £325,000. You may also have up to £175,000 of the “residence nil-rate band” to use when passing on your main home to a direct descendant, such as a child or grandchild.
This means you may have a total of £500,000 in nil-rate bands. Additionally, you can pass your entire estate to a spouse or civil partner without IHT, and they inherit your unused nil-rate bands. As a result, you could leave up to £1 million between you before triggering an IHT charge.
Any wealth that exceeds the nil-rate bands will be subject to IHT at 40%.
Business Relief means that certain business assets are exempt from Inheritance Tax
Under the current BR rules, you receive 100% IHT relief on some business assets. This means that, while they are still considered part of the estate when assessing whether the residence nil-rate band applies, you may not pay the full amount of IHT on these assets.
However, it is important to note that some assets that qualify for BR are considered high-risk investments. Therefore, do not invest unless you are prepared to lose all the money you invest. These are high-risk investments and you are unlikely to be protected if something goes wrong.
Prior to 6 April 2026, you will benefit from 100% relief on:
- A business or interest in a business
- Shares in an unlisted company, including shares traded on the Alternative Investment Market (AIM).
You also receive 50% relief on:
- Shares controlling more than 50% of the voting rights in a listed company
- Land, buildings, or machinery owned and used by a business that you controlled or were a partner in
- Land, buildings, or machinery used by the business and held in a trust that you have the right to benefit from.
Bear in mind that you must have owned these business assets for at least two years for BR to apply.
There is currently no upper limit on the value of assets you can claim BR on.
The government originally planned to introduce a £1 million cap on Business Relief
In her 2024 Budget, chancellor Rachel Reeves announced changes to BR and Agricultural Relief (AR), which offers similar IHT reliefs for farmland and homes occupied for agricultural purposes.
The original policy was to cap the total value of assets that could benefit from 100% BR and AR at £1 million. This allowance would not be transferable between spouses and civil partners in the same way that IHT nil-rate bands are.
Any qualifying assets that exceeded the £1 million threshold would only qualify for 50% relief. This means that, if those assets also exceeded your nil-rate bands, your beneficiaries would pay 40% IHT on half of the amount over the threshold.
Additionally, the treatment of unlisted shares (such as AIM shares but not genuinely unquoted shares) would be changed so they only qualified for 50% relief in all circumstances, rather than the 100% relief under the current rules. However, these shares would not count towards the £1 million allowance.
The revised rules, set to come into effect from 6 April 2026, increased the cap to £2.5 million
After the initial announcement, the policy drew criticism from farmers and business owners who were concerned that their families could face significant IHT bills in the future.
As a result, the government reviewed the policy and recently confirmed some important changes.
From 6 April 2026, the cap on the total value of assets that qualify for BR and AR will be £2.5 million, not £1 million. Crucially, the allowance will now be transferable between spouses and civil partners, as the nil-rate bands are.
This means that a couple can benefit from 100% IHT relief on business assets up to £5 million.
The rules around unlisted shares remain the same as originally planned.
The government also confirmed your beneficiaries will be able to pay IHT bills on eligible business and agricultural assets in instalments over ten years, without accruing interest.
It is important to seek professional guidance and understand how the new rules affect you
Once the BR changes come into effect, it could be far more difficult to pass your business to the next generation without a large IHT bill. Additionally, if your beneficiaries must pay outstanding IHT in instalments over the course of a decade, this could significantly reduce the profitability of the company.
As such, it is important to review your estate plan in light of the changes.
The BR rules are very complex, and it can be difficult to understand how they interact with standard IHT allowances and exemptions. We can support you by explaining your tax position and exploring various ways to reduce IHT.
Get in touch
If you are concerned about upcoming changes to BR, then please do get in touch with us at DBL Asset Management.
Email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals 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 or tax planning.
Do not invest unless you are prepared to lose all the money you invest. These are high-risk investments and you are unlikely to be protected if something goes wrong.