It’s not just farmers who need to be aware of Inheritance Tax rules, writes Selina Doggett. Other family businesses should take advice before changes come into effect in 2026.
There has been much coverage in the press about the potential loss of farmers’ Agricultural Property Relief following announcements made in the Autumn 2024 Budget. But there has been far less commentary on the impact on non-farming business due to similar restrictions to Business Property Relief (BPR).
Today’s rules
At the moment, BPR ensures the transfer of family businesses from one generation to the next without significant Inheritance Tax (IHT) liabilities. Currently it provides:
- 100% relief for assets such as unincorporated businesses, a share in a partnership, unquoted shares or shares listed on an alternative stock exchange (such as AIM);
or
- 50% relief for assets such as land/buildings or equipment used in a business but owned personally by the business owner.
These business assets have to have been owned for two years before the relief can be claimed, but if that’s the case, they can be retained until death without incurring a significant IHT liability.
An unwelcome surprise
However, from 6 April 2026, although there have been no changes to the qualifying conditions themselves, the amount of relief available has been capped. If you were planning on leaving business assets in your death estate, the new rules could trigger unexpected IHT liabilities.
From then onwards, the first £1 million of qualifying assets will be exempt from IHT, with business assets in excess of this sum only attracting 50% relief.
Also, listed shares treated as unquoted shares, including AIM listed shares, will only qualify for 50% BPR.
All of this could come as an unwelcome surprise to those who haven’t planned ahead.
Giving it away
One way of avoiding such a surprise could be to give your business away during your lifetime. It’s still possible to make such a gift between 30 October 2024 and 6 April 2026, and this will not be subject to the new £1 million limit. But transitional rules are in place, so your gift could still be affected.
If you die within 7 years of the date of the transfer, any resulting IHT liability will be calculated by reference to the new rules (i.e. only the first £1 million will be exempt), potentially triggering unexpected tax charges.
HMRC issued further guidance on 27 February 2025, saying that the £1 million allowance for individuals will be refreshed every seven years on a rolling basis, which may provide some relief.
They have also said that from April 2026, IHT on business property may be paid over ten annual instalments which will be interest-free, and so offer some measure of mitigation.
Trusts
Where trusts have been set up to hold business assets, these will in future receive a combined £1million allowance, though if multiple trusts were set up before 30 October 2024, these may have their own £1million allowance.
Trustees will need to consider the impact of these new rules in relation to 10-year anniversary charges and exit charges for capital distributions.
Planning ahead
Given the changes will not come into effect until April 2026, now is a sensible time for family businesses to consider whether it would be in their interests to transfer their assets before April 2026, in order to take advantage of the current, more generous relief available.
At the same time, it would be sensible to review current wills and other financial plans, to see how these are impacted by the changes made and the options available.
For further information and guidance contact Selina Doggett, who writes on behalf of HI HUB sponsor Streets Chartered Accountants, 3 Wellbrook Court, Girton t: 01223570000 e: selina.doggett@streets.uk
