Business Property Relief: Protecting Business Assets from IHT 2026/27

Business Property Relief (BPR) has long been one of the most valuable inheritance tax (IHT) reliefs available to business owners and investors. At its most generous, BPR provides 100% relief, meaning qualifying business assets pass to beneficiaries completely free of IHT. However, Budget 2024 introduced significant changes that take effect from April 2026, making urgent planning more important than ever.

What Is Business Property Relief?

BPR is an inheritance tax relief that reduces the taxable value of qualifying business property in your estate. It can apply both on death and on lifetime gifts into certain trusts or to individuals (though the two-year holding requirement must be satisfied at the time of the transfer).

The relief was originally designed to prevent the forced sale of family businesses to pay IHT bills. Without it, an IHT charge of 40% on the full value of a business could force families to sell or break up trading enterprises that had been built over decades.

The Two Rates of BPR

100% Relief

100% BPR applies to:

• An interest in a qualifying unincorporated trading business (sole trader or partnership share)
• Shares in an unquoted qualifying trading company (including AIM-listed shares)
• Shares in a quoted company where the transferor has control

50% Relief

50% BPR applies to:

• Land, buildings, machinery, or plant used wholly or mainly for business purposes in a qualifying company or partnership in which the transferor is a partner or controlling shareholder
• Shares in a quoted company where the transferor had control

The Two-Year Ownership Requirement

BPR only applies if you have owned the qualifying property for at least two years continuously before the transfer. There is an exception for replacement property -- if you sell one qualifying business asset and buy another, the ownership periods can be combined -- but the rules are specific and professional advice is essential.

The Budget 2024 GBP 1M Cap -- What Has Changed

Prior to April 2026, BPR was uncapped. A business worth GBP 10 million could attract GBP 4 million of IHT relief (100% of GBP 10 million protected). From April 2026, the government introduced a combined GBP 1M cap on the combined value of assets qualifying for 100% BPR and 100% Agricultural Property Relief (APR) per individual.

After the cap:

• First GBP 1M of qualifying BPR/APR assets: 100% relief (no IHT)
• Value above GBP 1M: 50% relief applies, meaning an effective IHT rate of 20% (50% of the standard 40%)

This is a substantial change for business owners with interests worth more than GBP 1 million. A business worth GBP 5 million previously attracted no IHT under BPR. From April 2026 it would attract IHT on GBP 4 million at an effective rate of 20% -- a potential bill of GBP 800,000.

The GBP 1M cap is per individual. Married couples or civil partners each have their own GBP 1M allowance, potentially sheltering GBP 2 million of business assets at 100%.

AIM Shares and BPR

Shares in AIM-listed companies that carry on a qualifying trade have historically attracted 100% BPR after two years of ownership. This made AIM portfolios a popular IHT planning tool for investors wanting liquidity alongside tax efficiency.

From April 2026, AIM shares remain qualifying property for BPR purposes but are subject to the new GBP 1M combined cap. Investors with large AIM portfolios should review their position urgently with a financial adviser.

What Does Not Qualify for BPR?

BPR does not apply to:

• Businesses mainly dealing in investments, securities, or land
• Furnished holiday lets and most property investment businesses
• Companies where the main activity is holding investments
• Business assets not used for business purposes (excepted assets)
• Property subject to a binding contract for sale

The distinction between a trading business and an investment business is not always clear-cut. HMRC scrutinises mixed businesses (for example, a company with significant property assets alongside a trade) and may challenge BPR claims.

Excepted Assets

Even within a qualifying business, assets that are not needed for the business can be excluded from BPR as excepted assets. Surplus cash held in a company is a common example. HMRC may argue that cash reserves above what is operationally required are excepted assets, reducing the available BPR.

Planning Considerations for 2026/27

The cap fundamentally changes BPR planning for business owners with substantial assets. Key considerations include:

Lifetime Gifts

Gifts of business property made at least seven years before death fall outside the estate entirely -- they do not use up the GBP 1M BPR cap. For older business owners in good health, planned gifting of business interests to the next generation can remove significant value from the IHT calculation.

Trusts

Certain discretionary trusts can receive BPR-qualifying assets. The entry charge to the trust may attract BPR, and the periodic and exit charges are also calculated with reference to BPR. However, the GBP 1M cap applies in the trust context too.

Spouse Relief and Sequencing

Transfers between spouses and civil partners are exempt from IHT. Combined with BPR, this means a couple can potentially shelter GBP 2 million at 100% relief. Careful planning of which spouse holds which assets -- and in what proportions -- can maximise the available relief.

Life Insurance

Given the new cap, a relevant life or whole-of-life insurance policy written in trust can help cover an anticipated IHT liability on business assets above GBP 1 million. Premium costs should be weighed against the potential tax saving.

Summary

BPR remains a vital IHT relief for business owners and investors in 2026/27, but the April 2026 cap fundamentally changes the landscape for those with qualifying assets above GBP 1 million. Review your position now, consider lifetime gifting strategies, and take professional advice to make the most of the relief before further changes are made. The GBP 1M threshold is per individual, so married couples should plan jointly to maximise the combined exemption.