How changes to Business Property Relief could increase your IHT

Posted on July 7, 2026

For many business owners, one of the key advantages of careful succession planning has been the ability to pass on a business to the next generation with little or no Inheritance Tax (IHT) liability in reliance on Business Property Relief (BPR).

However, significant changes announced in the October 2024 Budget have altered the landscape, meaning business owners may now face substantial IHT bills where none existed before.

Business Property Relief changes

Before the October 2024 Budget, qualifying business assets could generally benefit from 100% BPR. This meant that a business worth £10 million, for example, could potentially be passed on free of IHT.

The Government's reforms introduced a cap on the amount that may qualify for full relief which was introduced in April 2026. Initially, only the first £1 million of qualifying business assets could pass free of IHT. At the same time, similar changes were made to Agricultural Property Relief (APR), affecting farming businesses across the country. The widespread discontent this spread amongst farming and business communities was widely reported on at the time.

Relief for farmers and business owners

Following considerable lobbying from the farming community and wider business groups, the Government announced further revisions on 23 December 2025. The most significant change was an increase in the relief cap from £1 million to £2.5 million for both BPR and APR.

The introduction of the higher threshold of £2.5m, whilst welcomed by famers and business owners alike, still represents a hike in IHT where previously there was no liability. Several generations of family business owners including farming business have relied on IHT free transfers to help structure their approach to death and succession planning. Now that any value above this higher threshold is subject to IHT at the rate of 20% (rather than the standard 40% rate) this represents a significant new tax burden for many business owners and their families.

Using our £10 million business example above, the first £2.5 million would now still qualify for full BPR, while the remaining £7.5million will be subject to IHT at 20%, creating a liability of £1.5 million.

Important to note is that for married couples and civil partners who each qualify for the relief, this effectively allows up to £5 million of business assets to pass free of IHT.

Business property relief example

Returning to our example of a business worth £10 million:

The first £2.5 million qualifies for full relief.
The remaining £7.5 million is potentially subject to inheritance tax at 20%.
This creates a potential inheritance tax liability of £1.5 million.

While the revised £2.5 million cap is certainly more generous than the original £1 million limit, it still represents a substantial departure from the previous position where the entire business could have passed free of IHT.

Inheritance Tax on a business

These changes mean that many business owners who have never previously considered IHT tax to be an issue may now face significant liabilities.

The good news is that there may be planning opportunities available to help mitigate the impact of these reforms. Reviewing your succession plans, ownership structures, wills and wider estate planning arrangements could help ensure that your business and your family's wealth are protected as far as possible.

It is a risky business not understanding how the BPR changes could affect you.

With potentially hundreds of thousands, or even millions, of pounds at stake, obtaining specialist advice is essential. All business owner's circumstances are different, and the most appropriate planning strategy will depend on factors such as the value of the business, ownership arrangements, family circumstances and long-term objectives.

If you own a business, even if it is worth significantly less than the values discussed here, and are concerned about how the changes to BPR may affect your estate, seeking advice now could help you identify opportunities to reduce future IHT liabilities and protect the legacy you have worked so hard to build.

How can we help?

For legal advice on business wills, inheritance tax planning and estate planning contact Sarah Finnigan on 0161 785 3500 or email enquiries@pearsonlegal.co.uk

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.