The Chancellor’s announcements in the October budget have reduced the effective of Business Property Relief. If you are a sole trader, in partnership, and/or own a company, it is important that you consider the changes being introduced in April 2026.

What is Business Property Relief?

Business Property Relief is an Inheritance Tax relief which can be claimed on the value of your UK business. 

How did the Business Property Relief work?

If the conditions for Business Property Relief are met, your business interests can benefit from an Inheritance Tax Relief of 100%. Therefore, it will not be subject to any Inheritance Tax.

The conditions are:

1. At the time of your death, you continue to own the holding.
2. At the time of your death, you have owned the holding for 2 years or more.
3. The business is classed as ‘trading’ for tax purposes, and the business is being carried on for a gain and does not wholly or mainly consist of the following activities:
   • Dealing in securities, stocks and shares.
   • Dealing in land or buildings; or
   • Making or holding investments.

Note that the 100% relief applies only to your business interests, and does not include land, plant and machinery. However, if the relevant conditions apply, 50% Business Property Relief can be claimed on land, plant and machinery; the remaining 50% is subject to Inheritance Tax charged at 40%.

What changes were announced by the Chancellor in the Autumn 2024 Budget in connection with the relief?

From 6 April 2026, Business Property Relief will no longer be a 100% relief where the value of the business exceeds £1 million.

If the value of the business exceeds £1 million, 50% of the value which exceeds £1 million will not be taxed, and the remaining 50% will be subject to Inheritance Tax charged at 20%.

The Chancellor did not comment on the 50% relief that could be claimed on land, plant and machinery; we have therefore assumed in this article that this will remain, and as will the accompanying tax rate.

What are the financial implications of the changes to Business Property Relief?

The effect of the changes is that businesses throughout the UK will be subject to Inheritance Tax where they exceed £1 million in value and no other reliefs are available.

For example, a £4 million business with £100,000 in land and machinery, where no other reliefs are available, will be taxed as follows:

• The first £1 million is exempt.
• The value exceeding the £1 million threshold is £3 million.
• 50% of £3 million is exempt, totalling £ 1.5 million.
• The remaining £1.5 million is subject to Inheritance Tax charged at a lower rate of 20% (the usual rate is 40%).
• £1.5 million * 20% = £300,000. 
• £300,000 tax is payable.
• Land and machinery = £ 100,000.
• 50% of land and machinery is exempt, totalling £50,000.
• The remaining £50,000 is subject to Inheritance Tax charged as the usual rate of £40%.
• £50,000 * 40% = £ 20,000.

Post April 2026, total tax on business interests and business assets = £ 320,000.

Pre April 2026, total tax on business interests and business assets = £20,000.

What should you do?

You must consider estate planning and your Wills. With the help of accountants and our Wills service, we can structure your estate to reduce as much as possible your estate’s Inheritance Tax liability.

Please get in touch with the Private Client department by phoning 02920 345 511 or emailing estateplanning@berrysmith.com.