Business property relief (BPR) takes qualifying business assets partly or wholly out of inheritance tax. For deaths and transfers from 6 April 2026 the relief works differently than it did for decades: 100% relief now applies only to the first £2.5 million of combined business and agricultural property per person, with 50% relief above that — an effective 20% IHT rate on the excess. The allowance is transferable between spouses, refreshes every seven years for lifetime giving, and each qualifying trust has its own.
If you own a trading company, a partnership share or a farm, this reform is the biggest change to your estate planning in a generation — and a large share of what is written about it online describes either the old unlimited relief or the £1 million version originally announced in 2024, both of which are out of date. Here is the current position.
What qualifies, and at what rate
The categories themselves are unchanged (gov.uk):
- 100%-relief assets (within the allowance): a sole-trade business or partnership interest, and shares in unquoted trading companies — from a family company to most private trading groups;
- 50%-relief assets: controlling holdings in listed companies, and land, buildings or machinery you own personally but a company you control — or your partnership — uses in its business;
- AIM and other "not listed" shares: now 50% relief in all cases — and, usefully, 50%-relief assets do not consume the £2.5 million allowance, which is reserved for the 100% category.
Two-year ownership before the transfer remains the entry ticket, with limited exceptions for replacement property and inherited spousal assets.
How the £2.5 million allowance actually works
The mechanics matter, because they drive all the planning:
- Per person, and transferable. A married couple can shelter up to £5 million of qualifying property at 100%, and the transfer works even where the first death happened before April 2026.
- It refreshes every seven years for lifetime transfers, like the nil rate band. Someone who gives £2.5 million of company shares away, survives seven years, and still holds qualifying assets has a fresh allowance against their estate.
- Trusts have their own regime — and it is conditional. "Pre-commencement" settlements — those actually holding qualifying business or agricultural property on 30 October 2024 — get their own £2.5 million allowance. Trusts settled or funded after that date acquire allowance only through the settlor's qualifying transfers into them, capped at £2.5 million across all of a settlor's settlements combined — so separate full allowances cannot be assumed for every trust, and the fragmentation play was shut before it opened. The allowance works in periods running between ten-year anniversaries: relief used against charges in a period comes back for the next one, rather than each anniversary minting an extra unrestricted £2.5 million.
- Anti-forestalling reaches back. Gifts made on or after 30 October 2024 fall under the new rules if the donor dies on or after 6 April 2026 within seven years. The window to give under the old unlimited regime closed in 2024, whatever the transfer documents say.
- The allowance is fixed until April 2031, then index-linked.
Worked example (assuming the whole company qualifies, the full transferred allowance is available, and the nil rate bands are absorbed by other assets): a widow owns a trading company worth £6 million, her late husband's allowance unused. £5 million attracts 100% relief; the remaining £1 million gets 50% relief, leaving £500,000 taxable — an IHT bill of £200,000 on a business that would have passed entirely tax-free in 2025. Real money, but far from the confiscation headlines: the effective rate on the whole company is 3.3%.
The traps that predate the reform — and still catch more estates
In practice, most failed BPR claims fall over on the old rules, not the new cap:
- Wholly or mainly investment. No relief if the business mainly deals in securities or land or holds investments — the courts weigh turnover, profit, asset values and management time in the round, with "mainly" meaning more than half. Furnished lettings and most property businesses fail; hybrid trading-plus-investment businesses live or die on the balance viewed in the round — no single sub-50% metric is a safe harbour — which is why the trading-versus-investment picture is a monitored, evidenced discipline in well-run family companies.
- Excepted assets. Cash and investments inside a trading company that are neither used in the business nor required for it are carved out of the relief. The £2 million "rainy day" deposit that has sat untouched for a decade is the classic enquiry point — document what surplus cash is for, or expect HMRC to ask.
- Binding contracts for sale. If shareholders' or partnership agreements oblige the survivors to buy a deceased owner's interest, HMRC treats the interest as cash in waiting and relief is lost. Properly drafted cross-option agreements generally achieve the same commercial result without that damage — though each agreement needs reading on its own terms, and checking which kind yours is takes ten minutes against a potentially very expensive alternative.
What owners should actually do now
The reform converts BPR from a cliff-edge relief into a quantified planning problem, and the responses are concrete. Valuing the business realistically comes first — the planning is entirely different at £2 million than at £12 million. Above the allowance, the levers are the familiar ones with new force: lifetime gifts that use an allowance and start the seven-year refresh, trusts settled with their own allowance, life insurance written into trust to fund the 20% effective charge, and — because the taxable slice of a big estate now generates a real bill — reviewing the will so both spouses' allowances are actually available when needed: the allowance transfers between spouses, so the planning question is eligibility and claim mechanics rather than avoiding spousal transfers.
Farming families face the same arithmetic through agricultural property relief, which shares the combined allowance; the interaction between APR, BPR and diversified farm businesses is its own specialism, and getting the split right changes the answer materially.
One more moving part: the government has faced sustained pressure on these rules since they were announced, the allowance has already been raised once, and the reliefs remain on the speculation list for the October Budget. Planning should be robust to further tinkering — which argues for structures that work under several versions of the rules, not a single bet on today's.
Our inheritance tax and estate planning team runs BPR reviews — valuation, qualification, allowance planning and the shareholder-agreement check — usually alongside succession planning for the business itself and trust tax where settlements are involved. If your estate plan was written before 2025, it is describing a tax system that no longer exists.