What is Business Relief for Inheritance Tax and how has it changed?

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Business Relief (formerly known as Business Property Relief) has long been one of the most valuable Inheritance Tax reliefs available to business owners, but recent reforms have introduced a cap that changes the position for larger business interests. **What qualifies for Business Relief** Business Relief can apply to a sole trader's business, a share in a business partnership, and shares in an unlisted trading company (including many shares traded on AIM, the Alternative Investment Market, which is treated as unlisted for this purpose) -- provided the business is a genuine trading business rather than one mainly holding investments (such as a company that mainly lets property or holds securities, which generally does not qualify). **The traditional 100%/50% split** Historically, Business Relief offered 100% relief for most qualifying trading business interests (sole trader businesses, partnership shares, and unlisted or AIM-listed trading company shares) and a lower 50% relief for certain other qualifying assets, such as land, buildings, or machinery owned personally but used in a business the owner controls or is a partner in. **The reform from April 2026 -- a combined cap** From 6 April 2026, a new combined allowance applies jointly to Business Relief and Agricultural Property Relief together -- broadly, the first £1 million (combined across both reliefs) of otherwise-100%-relievable business and agricultural property qualifies for full 100% relief, while any value ABOVE this combined £1 million allowance only qualifies for 50% relief (rather than 100%), effectively introducing an Inheritance Tax charge at an effective rate of 20% (half of the standard 40% rate) on larger qualifying business and farming estates above the threshold. **Why this particularly affects larger family businesses and farms** Business owners and farmers with business or agricultural assets worth significantly more than the new combined £1 million allowance -- previously able to pass on the entire value free of Inheritance Tax under 100% relief -- now face a real Inheritance Tax liability on the value above the threshold, a significant change for family businesses and farming estates that had planned succession around the previous unlimited 100% relief. **The two-year minimum ownership requirement** Business Relief (both before and after the reform) generally requires the business assets to have been owned for at least two years before death (or before a lifetime gift, if relying on the seven-year rule for lifetime transfers), with some special rules allowing continuity of ownership periods where one qualifying business asset replaces another. **Worked example** A business owner dies holding shares in their unlisted trading company worth £3 million, which would previously have qualified for 100% Business Relief entirely. Under the rules from April 2026, the first £1 million (combined with any qualifying agricultural property, if none in this case) qualifies for 100% relief, while the remaining £2 million qualifies for only 50% relief -- meaning £1 million of that remaining value is treated as chargeable to Inheritance Tax at the normal 40% rate (after considering the nil rate band and other reliefs), a substantial change from the previous position of full exemption. **Practical tip** Business owners and farming families with substantial qualifying assets should review their succession and Inheritance Tax planning in light of the new combined £1 million allowance, since strategies that relied on unlimited 100% relief may need to be revisited -- for example considering lifetime gifting strategies, life insurance held in trust to cover a potential tax liability, or restructuring of business ownership, with specialist advice.

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