Business property relief (BPR) changes coming into effect on 6 April 2026 and succession planning

Currently, 100 per cent business property relief (BPR) is uncapped, meaning that if BPR applies, the asset is free of Inheritance Tax (IHT).

However, this is only true until 5 April 2026.

Key BPR changes coming into effect on 6 April 2026:

• £2.5 Million Cap: The 100 per cent relief rate applies only to the first £2.5 million of combined qualifying business and agricultural assets. Any excess value will be taxed at an effective 20 per cent IHT rate (50 per cent relief).
• AIM and Unlisted Shares: Shares listed on the Alternative Investment Market (AIM) or other unlisted, qualifying trading company shares will see their relief reduced to 50 per cent.
• Spousal Transfer: Unused portions of the £2.5 million allowance can be transferred to a surviving spouse or civil partner, effectively allowing couples to pass on up to £5 million with 100 per cent relief.
• Lifetime Gifts: Gifts of BPR/APR assets made on or after 30 October 2024, if the donor dies on or after 6 April 2026, will be subject to the new rules.
• Trusts: The £2.5 million limit applies to trust assets, including ten-year charges and exit charges, in addition to the settlor’s personal allowance.

The result of the above changes means that the IHT position and the Will need to be reviewed to ensure tax efficiency.

Part of the process of effective tax planning is to ensure that the family business is valued correctly, as the valuations shown on the balance sheet are often historical due to expense and time constraints that prevent the preparation of up-to-date valuations.

Therefore, you may want to consider getting a true reflection of the valuation of the family business to carry out effective IHT planning.

Also, as part of this process, you need to consider the business’s value if you are the main person running it, as there may not be significant market value if the business cannot be run as a going concern without you.

Therefore, for the continuity of the business, it is important to ensure that the next generation is ‘ready or willing to take on future ownership or leadership roles’.

Part of the process is to provide incentives for the individuals to run the business and this may involve giving shares in the company, which in turn may reduce the value of your estate for IHT.

If you were considering placing more than £325,000 worth of AIM and Unlisted shares into a discretionary trust that does not benefit the settlor, their spouse or their minor children, this must be done before 5 April 2026 to avoid an IHT entrance charge.

This will enable the use of 100 per cent business relief before it is reduced to 50 per cent.

If you want to undertake the above tax planning, please get in touch as soon as possible, as the implementation date for the changes mentioned above is fast approaching.