A Relief That Once Had No Limit Now Has One
For decades, Business Property Relief (BPR) was one of the most generous inheritance tax reliefs available in the UK. Qualifying business assets — shares in unquoted trading companies, interests in partnerships, sole trader businesses — could attract 100% relief from inheritance tax, with no upper limit.
That changed on 6 April 2026. The combined allowance for Business Property Relief and Agricultural Property Relief is now capped at £2.5 million per person. Above that threshold, the relief drops to 50%, meaning business assets above the cap face an effective inheritance tax rate of 20%.
For many small business owners, this will make no practical difference — the vast majority of UK SMEs are valued below the cap. But for those who have built companies worth more, or who hold a combination of business and agricultural assets, the implications are significant and require immediate attention.
How the Cap Works in Practice
The mechanics are straightforward but the planning consequences are not. The £2.5 million allowance applies to the combined value of assets qualifying for both BPR and APR at the 100% rate. This is per person, not per asset or per business.
Consider a business owner whose trading company shares are valued at £3.5 million at death. Under the old rules, the entire £3.5 million would have been exempt from IHT. Under the new rules:
- The first £2.5 million qualifies for 100% relief — no IHT
- The remaining £1 million qualifies for 50% relief — so £500,000 is chargeable
- At 40% IHT on the chargeable portion, the tax bill is £200,000
This is not a catastrophic burden for a £3.5 million estate, but it is a new cost that did not exist before April 2026, and it can be significantly larger for higher-value businesses.
Who Is Most Affected?
The owners most exposed to this change fall into several overlapping categories:
Owners of growing businesses: A company valued at £2 million today may well exceed £2.5 million within a few years. Owners who assume the cap does not affect them may find they have grown into the problem.
Multiple business interests: If you hold shares in more than one qualifying company, or run a business alongside agricultural land, the combined values count towards the single £2.5 million cap.
Property-rich businesses: Companies that hold significant property assets — whether as investments or operational premises — may see higher business valuations than their owners expect, particularly in London and the South East.
Married couples with unbalanced estates: The cap is per person. If all business assets sit in one spouse’s estate, only one £2.5 million allowance is available. Restructuring ownership between spouses can double the available relief.
Planning Strategies That Still Work
The cap does not eliminate BPR — it limits it. And several established planning techniques become more important under the new rules.
Equalising estates between spouses: Since each person has their own £2.5 million BPR allowance, transferring business assets between spouses (using the spousal exemption) can effectively double the total relief. This requires careful company law advice, especially for companies with existing shareholder agreements.
Lifetime gifting: Gifts of business assets during lifetime can remove value from the estate entirely, provided the donor survives seven years. The business must continue to qualify for BPR at the date of death if the seven-year period has not expired, so the donee should not sell immediately.
Business restructuring: For owners with a single high-value company, it may be worth considering whether certain assets within the business are truly trading assets or whether they are investment assets that do not qualify for BPR anyway. Separating genuine trading activity from investment holding can clarify the position and avoid unexpected valuations.
Life insurance: Where the potential IHT liability is quantifiable, a life insurance policy written into trust can provide the funds to meet the tax bill without forcing a sale of business assets. This is not a tax reduction strategy, but it prevents the practical problem of having to sell part of a business to pay HMRC.
The Wider Tax Landscape for Business Owners
The BPR cap does not exist in isolation. It is part of a broader tightening of reliefs for business owners that has taken place between October 2024 and April 2026:
- Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) increased from 10% to 18% CGT
- Employee Ownership Trust relief was halved from 100% to 50%
- Investors’ Relief lifetime limit was cut from £10 million to £1 million
- Standard Capital Gains Tax rose from 20% to 24%
Taken together, these changes mean that the total tax cost of owning, running, and ultimately passing on or selling a business has increased materially. Owners who have not reviewed their estate plans since before the Autumn Budget 2024 are almost certainly working with outdated assumptions.
What You Should Do Now
The most important step is simple: get a current valuation of your business. Not a rough estimate, but a proper valuation that reflects what HMRC would consider the market value of your shares or business interest at death.
If that figure is below £2.5 million, the new cap does not currently affect you — but you should plan for growth. If it exceeds the cap, you have options, but they require time to implement effectively. Lifetime gifting needs seven years to be fully effective. Restructuring ownership takes legal and tax advice. Even life insurance policies take time to arrange and have health-related conditions.
The one thing that does not help is ignoring the change. The cap is now law, and it applies to all deaths from 6 April 2026 onwards. If your business is your most valuable asset, your estate plan needs to reflect the world as it is today, not as it was two years ago.
If you would like to review how the BPR cap affects your estate, contact The Legacy Wills Company for a no-obligation conversation about your options.