For years, many family business owners have been able to assume that their shares would pass to the next generation free of inheritance tax. Since 6 April 2026, that assumption could be dangerously expensive. What should business owners be doing now?
Business property relief (BPR) has traditionally meant that qualifying shares in a family trading company could pass on death with 100% relief from inheritance tax (IHT), regardless of the value of the business.
That changed on 6 April 2026. The amount of qualifying agricultural and business property that can receive 100% relief is now limited to £2.5 million per person. Qualifying value above the available allowance receives relief at 50% instead. Any unused allowance can be transferred to a surviving spouse or civil partner, potentially increasing the allowance to £5 million on the second death.
For owners of valuable family companies, that creates an IHT exposure where previously there may have been none.
How big could the problem be?
Suppose an individual owns a trading company worth £10 million and the shares fully qualify for BPR.
The first £2.5 million can attract 100% relief. The remaining £7.5 million attracts relief at 50%, leaving £3.75 million potentially exposed to IHT. Assuming the nil rate band is required elsewhere in the estate, that produces an IHT liability of £1.5 million.
The effective tax rate on the business is 15%, rather than the headline 40%, but that may be little comfort if most of the family's wealth is tied up in company shares rather than cash.
IHT attributable to BPR-qualifying property can generally be paid in ten equal annual instalments without interest, but that does not remove the liability. It simply spreads the cash-flow problem.
Is doing nothing still an option?
For some businesses, yes. A company comfortably below the £2.5 million allowance may still pass entirely free of IHT.
But business values rarely stand still. A company worth £2 million today could be worth significantly more by the time its owner dies. The new rules therefore make regular valuations and succession planning much more important. Our Special Report BPR and APR: Planning Around the £2.5m Cap highlights that valuations now need to be monitored rather than considered only when a transfer or death occurs.
Waiting until retirement may also leave fewer planning options.
Could lifetime gifts help?
Potentially. The personal £2.5 million 100% relief allowance can effectively become available again once earlier chargeable transfers fall outside the seven-year period. This makes staged lifetime succession a much more significant planning tool for business owners whose qualifying assets exceed the allowance.
For example, an owner could consider passing some shares to adult children during their lifetime rather than retaining the entire company until death.
That does not mean giving shares away is automatically the right answer. Control of the company, dividend rights, family relationships, capital gains tax and the owner's continuing need for income all need to be considered.
What if you are not ready to hand over control?
That is where the planning becomes more interesting.
In appropriate circumstances, trusts can allow value to be moved out of an individual's estate while providing considerably more control than an outright gift. The Report includes an example of a business owner transferring part of a company to a discretionary trust while remaining a trustee, allowing the family to start succession planning without simply handing control of the company to the next generation.
Trusts have their own IHT rules and the new BPR limits also apply to them, so this is an area where the structure and timing of transfers matter.
Review the will as well
Another consequence of the changes is that an old assumption - “leave everything to my spouse and deal with IHT later” - may no longer produce the best result.
The £2.5 million allowance is transferable between spouses and civil partners, but there can be circumstances where using relief on the first death rather than simply transferring everything to the survivor produces a better succession or cash-flow outcome. The Report therefore considers whether existing wills should be revisited following the introduction of the cap.
The important point is that the new BPR regime makes inaction a planning decision in its own right. For a valuable family company, leaving the structure unchanged could mean deliberately accepting an IHT bill that might otherwise have been reduced.
Want to explore the planning opportunities?
For more detail on protecting family businesses following the changes to BPR, our Special Report, BPR and APR: Planning Around the £2.5m Cap provides practical guidance on the new rules and the planning opportunities available.
Buy Now> BPR and APR: Planning Around the £2.5m Cap
It considers, among other things:
- how the new £2.5 million 100% relief allowance works
- how married couples and civil partners can use transferable allowances
- whether business assets should pass on the first or second death
- how lifetime gifts can make use of successive relief allowances
- when trusts might allow succession planning without surrendering control; and
- why valuations, wills and existing succession plans now need to be reviewed.
The Report uses worked examples to show how the new rules affect real family businesses and how different succession strategies can substantially change the eventual IHT position. The strategies in our Report could save hundreds of thousands of pounds in IHT.
Find out more: BPR and APR: Planning Around the £2.5m Cap
