A company can be a genuine trading business and still contain value that does not qualify for Business Property Relief. In other cases, investment activities can become so significant that the company itself falls outside the relief. The distinction is especially important following the April 2026 changes.
Two different tests
First, is the business itself mainly a qualifying trade rather than an investment business? Second, even where the business qualifies overall, are there individual assets that should be excluded from relief?
Investment and property businesses
Businesses mainly making or holding investments generally do not qualify. That includes many companies holding investment portfolios or property for long-term rental.
A large property portfolio can involve significant management, maintenance and administration, but that does not necessarily change its investment character. A genuine property development or construction business can be different, and hotels or other accommodation businesses may also require a closer analysis because of the services provided. The facts matter more than the company’s label.
Investments inside a trading company
A manufacturing or service company may remain predominantly trading even if it has accumulated investments. However, particular assets can still be ‘excepted’ from relief. Broadly, an asset needs to have been used for the business over the relevant period or genuinely required for future business use.
This means a company qualifying overall does not automatically secure relief on every pound of its balance sheet.
Surplus cash
Cash is a common issue. Businesses genuinely need cash for working capital, stock, employees, capital expenditure, acquisitions and future projects. A large balance is therefore not automatically non-qualifying.
The question is why the money is being retained. If £2 million sits in a company that only needs £300,000 to operate and there is no identifiable use for the balance, the excess may be vulnerable. Evidence such as board minutes, budgets, acquisition plans and cash-flow forecasts can help demonstrate a genuine business requirement.
Mixed groups
A holding company can own trading subsidiaries alongside an investment subsidiary without automatically losing relief across the whole group. However, the value attributable to the investment activity may be excluded, and if investment activities become dominant the wider position can become more serious.
Can the position simply be fixed?
Moving an investment, property or surplus cash out of a company can itself trigger Corporation Tax, Capital Gains Tax, Income Tax, SDLT or stamp taxes. Last-minute restructuring also does not necessarily solve historic-use requirements. Planning is therefore normally more effective while the owner is healthy and there is no immediate succession event.
The April 2026 changes
The £2.5 million allowance for 100% Business Relief only applies to value that qualifies in the first place. Non-qualifying assets do not simply receive the reduced 50% relief available above the allowance; they can remain fully exposed to Inheritance Tax.
Business owners should therefore review not just whether the company trades, but what else it owns, why it owns those assets and whether the business has changed over time. For valuable family companies, reviewing the balance sheet can be just as important as valuing the trade itself.
The same review should consider how management time, income and asset value are split between trading and investment activities. There is no single percentage test that automatically decides whether a mixed business qualifies, so the overall facts can become important where investment activities have grown over time.
Keeping evidence of the commercial use of assets can also be valuable. If cash is earmarked for an acquisition or a property is needed for the trade, contemporaneous board papers and forecasts can be much more persuasive than explanations created only after an Inheritance Tax event.
