The 2025/26 tax year may only have just begun on 6 April, but it is already worth looking ahead to the next tax year in April 2026 if you are a business owner.
That is because there are key changes set to come into place from the start of the 2026/27 tax year, specifically related to Inheritance Tax (IHT) reliefs for businesses and agricultural operations.
If you do not familiarise yourself with these rules and consider what you can do about them, the next tax year could begin with your beneficiaries potentially facing a greater IHT bill when you pass away. This could also affect them during your lifetime if you gift business assets now.
This bill could put significant strain on your loved ones, and might even force them to wind up your business entirely if they need the value contained within it to settle a hefty IHT charge.
Read on for details of these changes, what they might mean for business owners like you, and how working with an adviser could help.
The government is reducing key Inheritance Tax reliefs for businesses
The crux of the issue facing business owners goes back to the Autumn Budget in October 2024.
During her speech, chancellor Rachel Reeves announced changes to the thresholds around Agricultural Property Relief (APR) and Business Relief (BR).
Under the current rules in 2025/26, APR allows you to claim IHT relief of up to 100% on agricultural property, including land and pasture used for rearing animals or growing crops.
Meanwhile, BR applies to general business assets, conferring relief of:
- 100% for a business or interest in a business, or shares in an unlisted company. You must have owned the business or shares for at least two years.
- 50% for shares controlling more than 50% of voting rights in a listed company, or land, buildings, or machinery used in the business or held in a trust that it could benefit from.
Crucially, both these reliefs have no limit. However, from April 2026, only the first £1 million of combined business and agricultural assets will be eligible for 100% relief.
After that, IHT will apply with 50% relief, like it currently does for land, buildings, and machinery.
This will also affect shares designated as “not listed” on a recognised stock exchange.
In practice, this means business and agricultural assets that exceed £1 million will be subject to an effective IHT rate of 20% from April 2026.
Your beneficiaries could face a higher Inheritance Tax bill moving forward
This change could be hugely significant for your beneficiaries, especially if you have sizable business assets.
Consider this example. Imagine that you had a non-agricultural business worth £3 million, and £500,000 in land and machinery. Assume that you have no other reliefs or exemptions available, except for BR.
As the rules currently stand, if you were to die or pass your business assets on to your loved ones, this would result in an IHT charge of £100,000, as your:
- £3 million in shares would benefit from 100% relief, attracting no charge
- £500,000 in land and machinery would benefit from 50% relief, creating an effective 20% IHT charge of £100,000.
However, from April 2026, only the first £1 million of shares would be IHT-free. In this instance, passing your business and assets on would result in a £500,000 charge, because your:
- Remaining £2 million in shares would attract 50% relief, leading to an effective 20% IHT charge of £400,000
- £500,000 in land and machinery would still create a £100,000 charge.
This is a significant uptick in IHT that your beneficiaries could face. They might struggle to find the funds to settle the charge, and they may even be forced to sell or dismantle the business to afford it.
Early planning could give you the opportunity to put plans in place for these changes
Right now, these rules are not in place and the government is yet to publish a technical consultation confirming details of the changes.
However, the potential increase in IHT that your loved ones could face may mean you want to look at putting a plan in place that mitigates tax, or at least provides your beneficiaries with the funds to settle the charge.
For example, you could gift business assets during your lifetime and have them be subject to the “seven-year rule”. This would mean the assets fall outside of the scope of IHT if you survive them by seven years.
Bear in mind that gifting business interests or assets could mean ceding control of your business, which you may not want to do.
Alternatively, you could consider writing a life insurance policy into trust with a payout equivalent to the IHT charge. If it is written into trust, the payout will not form part of your estate, and so will pass to your beneficiaries free from IHT. They could then use this to settle the resulting charge, negating the need to sell business assets to cover it.
These are by no means the only options you might have at your disposal, and you may want to consider speaking to a tax professional. They could help you look at the most appropriate tax mitigation methods in your circumstances.
Crucially, it is important to think about this sooner rather than later. Otherwise, you could arrive at April 2026 with no plans in place and, if the worst were to happen, you could be putting your family and your business in a difficult position.
Get in touch
If you are a business owner in need of support managing your wealth, we can help. 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 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 tax planning.