Have you considered the overall exposure of your business assets to Inheritance Tax (IHT)?
Are you aware of how much of your estate could be subject to the 40% charge on your passing?
Let's be honest, nobody likes talking about death but if you own a business then avoiding the conversation in a tax context could cost your family a large amount of money. IHT can be financially severe for some if you haven't planned properly.
A large chunk of your estate can pass to the taxman overnight and this can result in families having to sell the very business their loved one built in order to pay the bill. Changes to Business Property Relief (BPR) that come into effect in April 2026 are likely to further escalate this issue for many. For what was once a tax efficient shield is being cut significantly.
However, there is still time to use this mechanism to help protect your business. It's why I've written this guide to help you:
Read on to find out more about:
Business Property Relief (BPR) is a crucial tax break that can help protect your business, especially if it's a family business, being subject to a 40% Inheritance Tax (IHT) bill. It enables certain business assets to be passed on — either during your lifetime or after death — at a reduced tax charge or even none whatsoever.
BPR is a legal tax mechanism that ensures your business doesn't necessarily have to be sold to pay the tax bill if you qualify. Originally introduced in 1976, BPR was designed to ensure that when a business owner dies, their family can keep the organisation running, instead of being forced to sell assets to cover the IHT liability. Over the years it's been a lifeline for many owner managers, especially those with family-run organisations.
Unfortunately not all businesses and assets are eligible for this relief, it's complicated. BPR typically applies to:
It generally doesn't apply to:
If you have the following, then 100% relief is likely to apply:
A 50% relief applies to land, buildings, and/or machinery that are used in a qualifying business.
To qualify the business property must have been owned for at least 2 years before the death and transfer. Critically the business must also be classified as a genuine trading operation, not one that exists mainly for investment.
You also need to be aware of excepted assets which can catch people out. These are things H M Revenue & Customs (HMRC) doesn't think are necessary to running your business such as surplus cash, and personal assets like vehicles and unused equipment. They might be held by the business, but they don't qualify for BPR!
If you’ve a large cash reserve, you’ll need to document exactly what it’s for. Just "saving for a rainy day" won’t cut it. HMRC wants to see a clear, business-linked purpose.
If you've taken on debt to purchase or improve BPR qualifying assets, that debt is then subtracted from the value before the relief is calculated. So, say you take out a £200,000 loan to buy £400,000 of equipment, only £200,000 of that would be considered for BPR!
If you run a rural or farming business then this may also qualify for APR in addition to BPR. APR applies to land, buildings, and farm houses that are used for agricultural purposes. You may, for example, run a hotel guest house with land also used as a working farm that includes various barns for livestock, granaries for keeping seeds, and root cellars to store fruits and vegetables.
A mix of circumstances such as the ones listed above would likely qualify your business for both reliefs. There are also cases where both reliefs can also be used on the same property, but they operate differently, so it would be wise to obtain professional advice as getting it wrong could cost you money!
If you make a lifetime gift of the business property, this can qualify for BPR. You have to survive for 7 years after making the gift or else it becomes taxable under IHT rules as something called a Potentially Exempt Transfer (PET).
Worse still, if the person you gifted the business asset to no longer qualifies for BPR when you die then HMRC can claw back the relief. This might occur where in instances they sell the business or shut it down. The risk then is that your gift actually ends up landing them with a large tax bill!
From 6 April 2026 BPR will no longer be an unlimited tax relief. Instead a new, £1m lifetime cap is being introduced. The significance of this is:
And it’s not just future gifts that are impacted — the new rules apply to any lifetime gifts made on or after 30 October 2024 where the donor dies after 6 April 2026 but within 7 years of the gift. Also from April 2026, unused pensions will also form part of your estate and be applicable to the IHT charge. Unfortunately BPR doesn't apply to any assets held within your pension.
This means the clock is ticking!
Before we look at an example, you need to understand when IHT applies:
If your estate exceeds £2m in value, then £1 of RNRB allowance is lost for every £2 above this amount. If your estate is valued at £2.35m, the allowance is entirely removed, meaning you receive no benefit from it.
Sarah operates a thriving group of art galleries that she built up with her late husband. This is part of a family enterprise that has thrived over 3 decades. Following her husband’s passing last year, she now leads the business with support from her two daughters, who have been active in its operation for several years.
Sarah has a current, valid will in place. Succession plans mean her children will eventually assume full ownership. Presently, the business is valued at approximately £5m, carries no debt, and Sarah resides in a property valued at £500,000.
Under the current rules:
If BPR isn't applied then Sarah's estate would be subject to 40% IHT on £4.85m of assets (£5.5m minus the NRB of £650,000) leading to a tax bill of £1.94m! When BPR is applied at 100% in its current form then this means the estate passes down tax-free to her children.
Under the new BPR rules:
As of April 2026 only the first £1m of her business qualifies for the relief!
That then means the £3.85m of Sarah's estate (£4.85m of assets after the joint NRB and minus BPR at £1m) benefits from 50% relief being applied so that £1.925m is taxed at 40%. The result is a £770,000 IHT bill, albeit this can be settled through 10 deferred annual payments at a sum of £77,000 should her daughters continue the business!
Without proper planning her children could be forced to sell assets, or take on debt, or sell part or all of the business to pay the taxman. This highlights why the time for planning is now - not later - to be prepared for changes coming down the line.
As you can see, IHT is a sophisticated and complicated area of tax legislation. If you’ve built a successful business, it’s time to look beyond day-to-day operations, you need to think carefully about devising a succession plan. List your assets. Understand their value and check your eligibility for reliefs like BPR and APR.
Considerations also need to be made as to how subsequent planning and strategies will interact with other taxes such as Capital Gains Tax (CGT) in the future.
All of this means you likely need to have a high level understanding of tax law to implement such plans effectively. At Wellers, we have a rich history of working with entrepreneurs, family business owners, and shareholders to help you protect what you own and have built, and then pass it on wisely.
The upcoming 2026 BPR changes are a call to action to review your estate and commence tax planning. This is also about your legacy, namely ensuring it stays where it belongs - with the people you built it for.
The content of this post was created on 26/09/2025.
Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.
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