Glossary · UK
What is Business Relief (Inheritance Tax)?
An Inheritance Tax relief reducing the taxable value of qualifying business assets, including most trading company shares and unquoted business interests, by 100% or 50%, provided the assets were owned for at least two years before death.
Full Definition
Business Relief (formerly known as Business Property Relief) reduces the value of qualifying business assets for Inheritance Tax purposes, either by 100% (effectively removing them from the taxable estate entirely) or by 50%, depending on the type of asset. A sole trader's business, a partner's share in a trading partnership, and shares in an unquoted trading company (including shares listed on the Alternative Investment Market, AIM, which is treated as unquoted for this purpose) generally qualify for 100% relief, while land, buildings, or machinery used in a business but owned personally by a partner or controlling shareholder outside the business itself, and shares giving control of a quoted company, generally qualify only for 50% relief. To qualify, the assets must generally have been owned by the deceased (or their spouse, in certain continuity situations) for at least two years immediately before death, and the underlying business must be a genuine trading business -- Business Relief is specifically denied, or restricted, for businesses that consist "wholly or mainly" of dealing in securities, stocks or shares, land or buildings, or making or holding investments, since these are considered investment activities rather than trading, and HMRC scrutinises mixed businesses (such as a farm with significant let cottages, or a business combining trading and investment activity) closely to assess whether the trading element genuinely predominates. Following reforms announced in the October 2024 Budget, from 6 April 2026 the previously unlimited 100% relief for qualifying business and agricultural assets combined is being restricted: the first 1 million pounds of combined qualifying business and agricultural property will continue to receive 100% relief, but any value above that combined 1 million pound allowance will receive only 50% relief, a significant change for owners of larger family trading businesses and farms who had previously been able to pass on qualifying assets of any value entirely free of Inheritance Tax. Because Business Relief can be lost if a business ceases trading, is sold, or becomes predominantly an investment activity before death (or before the relevant holding period is met following a replacement of assets), business owners relying on it for succession planning should review their structure regularly, particularly in light of the new 1 million pound combined cap.