Business Relief and inheritance tax: what the 2026 changes mean for passing on a business
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There is a particular kind of pride that comes with building a business, and a particular kind of worry that comes with thinking about what happens to it when you are gone. For years, many owners took real comfort in Business Relief, the inheritance tax relief that could pass a qualifying business to the next generation with little or no tax to pay. That comfort was well placed for a long time. From 6 April 2026, though, the rules changed, and the old assumption that a business escapes inheritance tax entirely no longer holds for everyone.
Business Relief, still often called Business Property Relief or BPR, reduces the value of qualifying business assets when your estate is assessed for inheritance tax. To qualify you generally need to have owned the asset for at least two years, and it needs to be a genuine trading business rather than an investment vehicle. Typical examples include a share in a family trading company, an interest in a trading partnership, or the assets a sole trader uses day to day. An investment business, such as one holding buy to let property, usually does not qualify, which is a common source of disappointment. Relief has long come at two rates, 100% or 50%. What has changed is how much can benefit from the full 100%.
What changed on 6 April 2026
There is now a cap. From 6 April 2026, 100% relief applies only to the first £2.5 million of combined qualifying business and agricultural property you hold. Anything above that receives 50% relief, which leaves half the excess exposed to inheritance tax at the usual 40%, an effective rate of 20% on the part over the cap. The allowance began life smaller. It was announced at £1 million at the 2024 Budget, then raised to £2.5 million in December 2025 after a good deal of pushback. It can also pass between spouses and civil partners, so a couple can hand on up to £5 million of qualifying assets at full relief between them, on top of their usual nil rate bands.
There is a second change worth knowing. Shares quoted on junior markets such as AIM, which previously could attract 100% relief, now qualify for 50% only, and they do not use up the £2.5 million allowance. If part of your plan leaned on an AIM portfolio to do the heavy lifting, that part needs another look.
Take Sarah, aged sixty-eight, a fictional client who owns an engineering company worth around £4 million. Under the old rules her family would probably have expected the whole business to pass free of inheritance tax. Under the rules from April 2026, the first £2.5 million still qualifies for full relief, but the remaining £1.5 million attracts 50%. That leaves roughly £750,000 added to her taxable estate, and a potential inheritance tax bill in the region of £300,000. The business itself cannot easily be sold to raise that sum, which is exactly the kind of problem that catches families off guard.
Margaret's position also shows why reviewing your will matters. Because the allowance can now pass between spouses/civil partners, the way a business is left, and to whom, can change how much relief a couple ultimately keeps. A will drafted before these changes may no longer do what you assume, and leaving everything to a spouse is not always the most efficient answer once an allowance is in play.
Why this still matters, even below the cap
The government expects only around 1,100 estates a year to actually pay more because of these changes, so most families will not be affected, and that is worth keeping in perspective. But asset values drift upwards while the thresholds stay frozen, so more estates are pulled towards the cap each year even though the headline rules stay still. Business Relief remains genuinely valuable, and using both spouses/civil partners' allowances, keeping good records, and planning lifetime gifts carefully all still count.
The risks that have not gone away
None of this changes an older truth. Investing in unquoted or AIM shares purely to capture a tax relief carries real risk. These holdings can be hard to sell, their value can swing sharply, and a business can stop qualifying for relief altogether. Letting the tax tail wag the investment dog rarely ends well, and your capital is genuinely at stake. There is also the question of finding the cash. Where a bill does arise on business or agricultural property, it can usually be paid in interest-free instalments over ten years, which helps, but it still needs planning for rather than leaving to your executors to solve.
In summary
Business Relief is still one of the more powerful tools in estate planning, but it is no longer the unlimited shield it once was. The reforms reward the families who plan ahead, use both spouses/civil partners' allowances where they can, and check where their business sits against the new cap. Those who assume nothing has changed risk leaving their loved ones an unexpected bill.
If you own a business or a farm, or hold shares you are counting on for Business Relief, get in touch with a suitably qualified financial planner such as ourselves to review where you stand under the new rules before you rely on the relief being there.