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

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Business Relief has traditionally been one of the most powerful Inheritance Tax reliefs for business owners and certain investors, but recent reforms have significantly reduced its generosity for larger holdings and for AIM-listed shares specifically. **What qualifies for Business Relief** Business Relief applies to a range of qualifying business assets, most commonly: a sole trader's interest in their own unincorporated business; a partner's interest in a trading partnership; and shares in an UNLISTED trading company (which, importantly, includes companies listed on AIM, since AIM is legally classed as an unlisted/junior market rather than the main London Stock Exchange market). Shares in a fully listed company on the main market generally do NOT qualify for Business Relief (though a controlling shareholding of listed shares can qualify at a lower 50% rate in some circumstances). The underlying business must be a genuine trading business -- companies mainly holding investments (such as a company that primarily holds property to let out) generally do not qualify. **The historic 100%/50% split** Before the recent reforms, qualifying unincorporated business interests and unlisted (including AIM) trading company shares typically received 100% relief, while certain other qualifying interests (such as land, buildings, or machinery owned personally but used by a business the owner controls or is a partner in) received a lower 50% relief rate. **The Autumn Budget 2024 reform -- £1 million cap on 100% relief** From 6 April 2026, the first £1 million of combined Business Relief and Agricultural Property Relief qualifying value, per individual, continues to receive 100% relief. Value ABOVE this £1 million combined threshold now only receives 50% relief, resulting in an effective 20% Inheritance Tax rate on the excess, where previously none would have applied -- a substantial change for owners of valuable unlisted trading businesses. **AIM shares -- a separate, more significant cut** Separately and in addition to the £1 million cap, AIM-listed shares that qualify for Business Relief now only receive 50% relief REGARDLESS of the value involved (i.e., the £1 million 100%-relief allowance does not apply to AIM shares at all) -- this is a particularly significant change for investors who had built up AIM portfolios specifically as an Inheritance Tax planning strategy, since AIM shares were previously a popular way to get 100% IHT relief after just two years of ownership while retaining access to the funds (unlike gifting, which requires giving up the asset and surviving seven years). **Why AIM was popular for IHT planning** Many investors and wealth managers built dedicated "AIM IHT portfolios" specifically because, historically, holding qualifying AIM shares for just two years secured 100% Business Relief, offering a much faster route to full IHT exemption than the standard seven-year gifting rule, while the investor retained full ownership and control of the assets throughout. The reduction to 50% relief on AIM shares significantly reduces (though doesn't eliminate) the IHT planning attractiveness of this strategy. **The two-year minimum ownership period still applies** Regardless of the relief rate, qualifying business assets generally still need to have been owned for at least two years before death (or replacement property rules apply if you sold and reinvested in another qualifying business asset) for Business Relief to apply at all -- this minimum ownership period is unchanged by the recent reforms. **Interaction with lifetime gifts of business assets** Business Relief can also apply to REDUCE the value of a lifetime gift of qualifying business assets if the donor dies within seven years (a "failed" Potentially Exempt Transfer), though the RECIPIENT generally needs to have retained the qualifying business asset (or a qualifying replacement) throughout the period up to the donor's death for the relief to still apply at that point. **Practical tip** Business owners and investors holding AIM shares specifically for Inheritance Tax planning purposes should review their strategy in light of the reduced 50% relief rate, and business owners with combined Business Relief and Agricultural Property Relief qualifying assets likely to exceed £1 million should seek specialist advice on ownership structuring, lifetime gifting, or insurance-based solutions well ahead of any anticipated transfer.

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