For many owners, the family business is their largest asset. Business Property Relief (BPR), now commonly referred to as Business Relief, can significantly reduce the Inheritance Tax exposure on qualifying business interests. However, the rules changed materially from 6 April 2026.
What does Business Relief do?
Relief can apply to qualifying unlisted trading company shares, partnership interests and sole-trader businesses. The property will generally need to have been owned for at least two years, although there are special rules for replacement business property and certain reorganisations.
The £2.5 million allowance from April 2026
For deaths and relevant transfers from 6 April 2026, up to £2.5 million of qualifying business and agricultural property can receive 100% relief. Qualifying value above the available allowance generally receives 50% relief.
Where the first spouse or civil partner does not use all of their allowance, the unused amount may be claimed by the estate of the survivor, potentially allowing up to £5 million to receive 100% relief. It is not, however, a freely transferable lifetime allowance, and qualifying lifetime transfers can affect what remains available.
For example, if an individual owns £4 million of fully qualifying private company shares and has their full £2.5 million allowance available, £2.5 million may receive 100% relief and the remaining £1.5 million may receive 50% relief. That leaves £750,000 of business value exposed before considering other allowances and exemptions.
Certain qualifying shares traded on markets such as AIM are subject to separate rules and generally receive 50% relief rather than using the £2.5 million allowance for 100% relief.
What businesses qualify?
BPR is primarily aimed at genuine trading businesses. Companies mainly holding investments or investment property will generally not qualify in the same way. A trading company can also contain individual assets that do not qualify, such as certain investments or surplus cash — an issue considered separately in our article on non-qualifying assets.
Lifetime succession
BPR can be relevant to lifetime gifts as well as death. A gift of business shares can still create Capital Gains Tax, although qualifying trading shares may potentially benefit from hold-over relief. If the donor dies within seven years, the recipient may also need to continue holding qualifying business property for BPR to protect the transfer.
Selling the business changes the estate
A qualifying trading company may benefit from Business Relief, but the cash received when it is sold generally will not. An owner selling for £8 million can therefore move from holding a substantially relieved business asset to holding cash and investments exposed to Inheritance Tax. That does not mean a business should be retained purely for tax, but the estate-planning consequences of an exit should be considered.
Shareholder agreements can affect relief
A binding agreement requiring a deceased shareholder’s estate to sell and the other shareholders to buy can prevent Business Relief from applying. Shareholder protection is therefore often structured using carefully drafted options rather than an automatic sale.
Paying any remaining tax
From April 2026, Inheritance Tax attributable to qualifying business property can generally be paid in ten annual instalments, interest-free while the relevant conditions continue to be met. A later disposal can accelerate the outstanding instalments.
Business Relief remains extremely valuable, but owners should no longer assume that a valuable family company will automatically fall completely outside Inheritance Tax. The business, its assets, the available £2.5 million allowance and the wider succession plan should be reviewed together.
Regular valuation is increasingly important as well. The relief available depends on the value transferred, so a business that grows rapidly can move from being fully covered by the 100% allowance to creating a meaningful Inheritance Tax exposure. Owners should revisit the position after major acquisitions, restructures or significant changes in value.
