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Business Property Relief Changes to Remain

The 2024 Autumn Budget proposed changes to Inheritance Tax reliefs, which ministers have continued to support despite opposition. As a result, the planned changes to Business Property Relief (BPR) outlined in the 2024 Autumn Budget are set to remain.

What Are the Changes?

The Autumn Budget announced reforms to Business Property Relief. From 6 April 2026, the 100% relief will apply only to the first £1 million of a business’s value. Any value above this threshold will be eligible for relief at only 50%, with the remaining 50% subject to Inheritance Tax.

Please note that the 100% relief applies only to your business interests and does not include land, plant, or machinery. The Budget did not comment on the 50% relief currently available for land, plant, and machinery, which, for the purposes of this article, is assumed to remain unchanged.

Example – Post April 2026

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.
  • BPR applies at 50% to the remaining £3 million, meaning £1.5 million is relieved.
  • The remaining £1.5 million is taxable.
  • The Nil Rate Band (Inheritance Tax-free allowance) is £325,000, reducing the taxable amount to £1.175 million.
  • Tax is charged at 20%, resulting in a £235,000 tax liability.
  • Land and machinery: £100,000.
  • 50% relief applies to land and machinery, totalling £50,000.
  • The remaining £50,000 is taxed at 40%, resulting in a £20,000 tax liability.
  • Total Inheritance Tax liability: £255,000.

How to Mitigate the Impact

There are steps you can take to manage the proposed changes and reduce your Inheritance Tax liability. The most suitable approach depends on your individual circumstances.

1. Transferring Assets into Joint Names & Making Separate Will Provisions

If a business is owned jointly, each owner would benefit from the £1 million allowance. However, this allowance is not transferable between spouses. If you leave your business share to your spouse, you will not both benefit from the £1 million exemption.

To make full use of the allowance, you could leave up to £1 million of your business shares to someone other than your spouse. Your spouse could do the same for any shares they own. These shares could be left to children or placed in a trust (see below).

Therefore, creating or updating your Will is essential to mitigate the impact of these changes to BPR.

2. Discretionary Trust

Instead of leaving your business shares outright to your spouse, you could place them into a discretionary trust. This allows you to name both your spouse and children as beneficiaries. Your spouse would still benefit from their individual £1 million BPR allowance.

Placing shares into a discretionary trust ensures that the business shares are not owned outright by your spouse, preserving tax relief for both of you.

3. Gifting Business Assets

Gifting business shares or assets can be an effective estate planning strategy. If you gift business assets or shares and survive for seven years, no Inheritance Tax will be due on that gift.

However, for the gift to be effective:

  • You must not retain any benefit from the gifted assets or continue using them.
  • You should consult an accountant to assess Capital Gains Tax implications before making a gift.

What Should You Do?

Estate planning is crucial. With guidance from our Wills and Property team, alongside your accountant, we can help structure your estate to minimise Inheritance Tax liability.

Contact our Private Client department:
📞 02920 345 511
📧 estateplanning@berrysmith.com