In the October 2024 Budget, the Government confirmed reforms to Inheritance Tax (IHT) that will take effect from April 2026.
The changes will restrict the availability of Business Property Relief (BPR), which helps reduce the tax liabilities of family-owned businesses.
The new £1 million BPR cap
BPR currently gives up to 100 per cent relief on qualifying assets, allowing them to pass free of IHT if the right conditions are met.
However, from April 2026, only the first £1 million of qualifying business assets will receive 100 per cent BPR. Any value above that figure will be eligible for 50 per cent relief.
The standard 40 per cent IHT rate will then apply, creating an effective 20 per cent IHT charge on death.
The cap will apply per individual and will not be transferable between spouses. Each trust will have its own £1 million limit. However, individuals cannot create multiple trusts to multiply the allowance.
Why family firms are at risk
A significant number of private sector businesses in the UK are family-run – estimated to be more than 5 million in total.
Many of them already exceed £1 million in value once property, retained profits and other assets are included.
BPR has enabled family businesses to pass down wealth from generation to generation without triggering Inheritance Tax liabilities.
However, the new restrictions could leave them facing a substantial IHT bill if no planning takes place.
Steps to take before IHT reform in 2026
Succession planning will be important for family-run business owners, even if you do not plan to exit or retire soon.
Families should review ownership structures to see whether shares can be distributed among family members or held in trust.
Transfers before April 2026 may allow access to more than one, £1 million allowance, but professional guidance is necessary to avoid unintended tax consequences.
A review of the balance sheet can identify and remove assets that do not qualify for relief, while planning for liquidity helps ensure beneficiaries have funds available to pay any tax without needing to sell trading assets.
Contact us to reduce future tax exposure and ensure a smooth transition to the next generation.
