From April 2026, Inheritance Tax (“IHT”) will be charged on certain business assets worth over £1million. That is a seismic shift from the old rules, where qualifying assets could escape IHT entirely. For some families, it means a sizeable tax bill on assets they thought were safe. The clock is now ticking for anyone who wants to protect more than £1million of qualifying property.
Historically, Business Property Relief (“BPR”) has provided a lifeline for family businesses, by exempting qualifying business assets from IHT so they can pass to heirs without a tax charge. In broad terms, under the current rules:
- 100% relief is available for:
- A business (carried on by a sole trader).
- An interest in a business (such as partnership share).
- Unquoted trading company shares, and securities that give the owner control of more than 50% of the vote in decisions affecting the company as a whole – this would cover most family companies.
- 50% relief is available for:
- Controlling holdings in quoted companies.
- Land, buildings, or machinery used by a qualifying business but owned personally.
To qualify, you normally need to have owned the asset for at least two years, and the business must be a trading business (i.e. not just an investment vehicle). Surplus cash and other “excepted assets” can restrict relief if they are not genuinely required for the trade.
What is changing from April 2026?
From 6 April 2026, the government will introduce a cap on the amount that can benefit from the full relief:
- The first £1 million of combined qualifying Agricultural Property Relief (“APR”) and BPR per individual will still receive 100% relief.
- Values above £1 million will receive 50% relief (so the exposed slice is charged at an effective 20% rate).
- The £1 million allowance is not transferable between spouses or civil partners; if it is not used on the first death, it is lost.
- Shares in companies that are not listed on a recognised stock exchange (for example AIM shares and certain overseas-listed shares) will only qualify for 50% relief under the new rules.
Anti-forestalling measures apply, so certain lifetime transfers made on or after 30 October 2024 are brought into the new regime, if death occurs on or after 6 April 2026.
Why does this matter?
It is surprisingly easy for even modest family businesses to exceed the £1 million threshold, especially if you own valuable premises or equipment.
What can you do now?
The good news is that there is still time to plan. You should consider:
- Reviewing your will to make sure both spouses use their £1 million allowance – for example, by leaving some business assets directly to children on the first death.
- Lifetime gifts of shares to the next generation (bearing in mind the seven-year gifting rule for IHT and the anti-forestalling provisions in place since 30 October 2024).
- Identifying qualifying assets and likely values under the new rules and working out where you want the assets to land.
- Aligning company documents and protections with the succession plan.
- Restructuring ownership of business assets so that allowances are maximised across family members.
- Cleaning up ‘excepted assets’ – surplus cash and investments not needed for trade can erode relief.
- Planning for liquidity – there is an instalment option to pay IHT which may help cash flow, but you will need to consider how a hefty tax bill might be settled.
Common pitfalls to avoid
- Assuming “we are a trading company, so we are fine”; investment activities and surplus assets can all chip away at relief.
- Letting the first spouse’s £1 million go unused. A simple “everything to each other” will can now waste relief.
- Leaving governance until after share transfers – if children become co-owners earlier than expected, make sure voting, dividends, transfers, and protections are in place.
- Poor records around gifts and business purpose – clear paperwork helps executors and reduces the risk of HMRC challenge.
Other changes – including new trust rules and future pension reforms – may also affect succession plans. If you use trusts, hold illiquid assets, or have business property in a pension, take advice now to see how these fit into your strategy.
Every family business is different. The message is simple – act early. The changes from April 2026 are significant but manageable with a clear plan. A comprehensive review now of wills, ownership, governance, and cash can mean the difference between a smooth handover and an avoidable tax bill that upends the next generation’s prospects.