From April 2026, significant reforms to inheritance tax (IHT) reliefs will take effect, reshaping the landscape for business owners. Chief among these changes is the introduction of a £1 million cap on Business Property Relief (BPR), which was previously uncapped. B P Collins’ private client team explores what this change means for business owners, succession planning and how to mitigate the implications ahead of time.
A recap on Business Property Relief
Business Property Relief (BPR) has long been a vital mechanism for business owners seeking to pass on business assets without incurring a significant inheritance tax bill. Under current rules, qualifying business assets can receive relief at 100% (or 50% in some cases), meaning no IHT is due on their transfer either during a lifetime gift or upon death (after 2 years of ownership).
This relief has enabled family-run businesses, private companies and individual business owners to ensure the continuity of operations across generations without the burden of a 40% tax on the value of business assets. Importantly, BPR has supported entrepreneurial activity by allowing owners to reinvest in their businesses with confidence about the tax implications for their heirs.
However, the landscape will shift dramatically from April 2026.
What the cap means
The introduction of a £1 million lifetime cap on BPR is a marked departure from the longstanding approach. Under the new regime, the maximum value of qualifying business property that can benefit from 100% IHT relief will be limited to £1 million per individual. Any value above £1 million will only qualify for 50% relief, resulting in a 20% tax charge (40% IHT × 50%) on the excess.
This is a particularly pressing concern for owners of successful private businesses, family companies and those holding shares in trading businesses through investment structures. With company valuations often well in excess of this threshold, the financial exposure to IHT could be substantial.
Practical implications for business owners
For many business owners, this policy change means that the estate planning strategies that have been in place for years – or even decades – may no longer be appropriate. Key concerns include:
- Succession planning: Passing on shares in a family business could now trigger a substantial IHT liability, potentially forcing heirs to sell or dilute ownership to raise funds to pay tax.
- Liquidity pressures: Many privately held businesses are not liquid assets. The cap increases the risk that families may need to sell core business assets to meet tax obligations.
- Valuation challenges: Disputes over how business assets are valued could become more frequent and contentious, as the amount of IHT due now has direct and material consequences.
- Ownership structures: Individuals with shares held through trusts or holding companies will need to review whether these arrangements still offer tax efficiency under the new rules.
Limited scope for relief rollover
Under the current proposals we understand that the £1 million cap will be a lifetime allowance, meaning it would apply cumulatively across all qualifying transfers an individual makes during life and on death.
This creates an incentive for early planning. Those who anticipate making multiple transfers, such as entrepreneurs with diverse business interests or serial investors in trading companies, should begin evaluating which assets to prioritise for tax-efficient transfer before the changes take effect.
Strategies to consider now
With just over six months until the cap is implemented, business owners have a window of opportunity to act. Some options may include:
- Family investment companies: Restructuring to shift value into vehicles that can be more tax-efficient under the new rules.
- Gifting business interests into trust before April 2026: Making lifetime gifts into trust now while BPR is still uncapped (subject to the two-year ownership rule) could avoid an entry charge for IHT purposes (entry charges will apply after April 2026 where the business value exceeds £1m).
Agricultural Property Relief (APR)
It’s also important to acknowledge the parallel changes to Agricultural Property Relief. From April 2026, APR will also be capped at £1 million. This is likely to impact large farming estates and landowners, particularly where land values have increased significantly. The cap may result in inheritance tax being due on farmland previously fully exempt, especially when combined with diversified rural business activities.
The upcoming cap on Business Property Relief marks a turning point in inheritance tax planning. The change introduces considerable complexity and financial risk for entrepreneurs and business owners. Early engagement with B P Collins’ private client and corporate and commercial solicitors, timely action and a review of succession strategies are now more essential than ever. Please email enquries@bpcollins.co.uk or call 01753 889995 for further information and advice.
