Inheritance Tax for business owners – a time to plan?

The current regulations

The current Inheritance Tax regime offers a significant advantage for business owners. Business Property Relief (BPR) allows 100% relief from Inheritance Tax on the value of trading business assets held at the time of death. Additionally, personally owned assets utilised by the business qualify for 50% relief. Similar reliefs, known as Agricultural Property Relief, apply to farmers and landowners.

These provisions create valuable opportunities for mitigating Inheritance Tax and enabling the whole transfer of businesses to the next generation—a priority for family-owned businesses and farms.

For instance, shares in a trading company can be transferred to the next generation during the owner’s lifetime. If the owner passes away within seven years of making the gift, BPR still applies to the full value of the shares, provided the recipient retains ownership at the time of the owner's death.

Business shares can also be placed into a trust in a tax-efficient manner to enhance protection, flexibility, and control. While lifetime transfers into trust typically incur Inheritance Tax at 20% on amounts exceeding the Nil Rate Band (currently £325,000, frozen until 2030), BPR often eliminates this entry charge when transferring trading business shares.

Should the owner pass away within seven years of the transfer, BPR would still apply to the full value of the shares held in the trust. Furthermore, the trust's ongoing tax obligations—such as the maximum Inheritance Tax rate of 6% every 10 years or on asset distributions—would benefit from BPR on the full value of the shares.

This approach ensures business continuity and avoids the need for family members to liquidate assets to cover tax liabilities, particularly for businesses with largely illiquid assets.

The Inheritance Tax Regime Post-Budget 

The recent budget has introduced significant changes to the Inheritance Tax framework, set to take effect from 6 April 2026.

Under the new rules, 100% Business Property Relief (BPR) will be limited to the first £1 million of trading business assets. Any value exceeding this threshold will qualify for only 50% BPR. In practical terms, based on current rates, this means an effective Inheritance Tax rate of 20% will apply to business assets exceeding £1 million.

For farmers and landowners, the £1 million threshold will represent a combined limit, proportionately applied across assets qualifying for both BPR and Agricultural Property Relief.

Significantly, personally held assets used by the business—currently eligible for 50% relief—will not count toward the £1 million allowance under the revised rules.

For trusts created before the budget announcement on 30 October 2024, the new rules will affect 10th-anniversary charges and exit charges from 6 April 2026. For instance, shares in a trading business held in trust will receive 100% BPR on the first £1 million of value, with any excess qualifying for only 50% BPR.

Similarly, trusts created on or after 6 April 2026 will be subject to the same limits. This means that shares transferred into trust and qualifying for BPR will incur a lifetime tax charge of 10% (based on current rates) on any value above £1 million.

These changes add complexity to trust taxation, which is already complicated. The better details of implementation are expected to emerge during consultations before April 2026—so further developments should be closely monitored.

Additionally, shares listed on recognised stock exchanges, such as AIM, will no longer qualify for 100% BPR as they do under current rules. From 6 April 2026, these shares will only benefit from 50% BPR.

A Call to Action Before 5 April 2026

The rearrangement of the new rules to 6 April 2026 provides a valuable opportunity to act under the current framework. Making lifetime gifts now can help maximise the benefits of the existing rules.

However, the Government has clarified that gifts made between 30 October 2024 and 5 April 2026 will be subject to the new rules if the owner passes away within seven years. In such cases, 100% Business Property Relief (BPR) will apply only to the first £1 million of the gift’s value, with any excess qualifying for 50% relief. The usual tapering of the applicable tax rate for lifetime gifts will then apply.

Hopefully, the ability to transfer business assets into a trust with the benefit of 100% BPR remains available until 5 April 2026. While the new rules will apply if the owner dies within seven years and will also direct 10th-anniversary charges and exit charges for the trust, utilising the current rules can mitigate the lifetime charge on trust creation. Especially, for trusts established after 30 October 2024, the £1 million allowance will be shared across multiple trusts for these purposes.



This means there is still an opportunity to implement tax-efficient planning before the rules change on 6 April 2026. Any planning undertaken now must, however, account for the fact that the new rules will apply to future tax events relating to these arrangements.

A Time to Plan?

While the new rules may not be as advantageous as the current regime, their announcement brings much-needed certainty. This is particularly reassuring given pre-budget speculation that Business Property Relief (BPR) and Agricultural Property Relief (APR) might be eliminated entirely.

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