Business Relief Inheritance Tax: Rules for Business Owners in 2026/27

Business Relief Inheritance Tax rules can reduce the Inheritance Tax (IHT) arising when qualifying businesses, company shares and certain business assets are transferred during lifetime or on death.

Business Relief, historically known as Business Property Relief or BPR, remains an important part of succession planning for UK business owners. However, substantial changes took effect from 6 April 2026, including a new £2.5 million limit on qualifying agricultural and business property receiving relief at 100%.

Business owners should therefore avoid assuming that an entire qualifying company can automatically pass free of IHT. The value of the business, type of asset, ownership period and nature of its activities all affect the relief available. This sits within the wider Inheritance Tax and estate planning framework explained in our ultimate guide to personal tax in the UK.

What Is Business Relief for Inheritance Tax?

Business Relief reduces the value attributable to qualifying business property when calculating an Inheritance Tax liability.

Depending on the asset and the available Business Relief allowance, relief can be available at either 100% or 50%.

The relief can potentially apply to a business or interest in a business, qualifying unlisted company shares, certain AIM shares, controlling holdings in listed companies and some land, buildings or machinery used by a qualifying business.

Relief is not automatic. The relevant Business Relief eligibility conditions must be satisfied at the time of the transfer.

What Changed to Business Relief From 6 April 2026?

The main change for 2026/27 is the introduction of a 100% Agricultural Relief and Business Relief allowance.

For individuals, up to £2.5 million of qualifying agricultural and business property can generally receive relief at 100%, subject to the detailed rules.

The £2.5 million is a combined allowance. It is not a separate £2.5 million allowance for Business Relief and another £2.5 million for Agricultural Relief.

Qualifying property above the available 100% relief allowance generally receives relief at 50%.

How Does the £2.5 Million Business Relief Allowance Work?

Suppose a business owner dies in 2026/27 owning qualifying unlisted company shares worth £4 million and the full £2.5 million allowance is available.

The first £2.5 million could qualify for 100% Business Relief. The remaining £1.5 million would generally qualify for 50% relief, reducing that portion to £750,000 for IHT purposes before considering other available exemptions and nil-rate bands.

The final tax liability depends on the wider estate, so Business Relief should always be considered alongside the rest of the IHT calculation. Farming families in particular should review this alongside the separate overview of IHT Agricultural Relief, since the two reliefs now share the same combined allowance.

Can an Unused Business Relief Allowance Transfer to a Spouse?

Yes. From 6 April 2026, an unused part of the £2.5 million 100% relief allowance can potentially transfer to a surviving spouse or civil partner.

This means a surviving spouse or civil partner could potentially have an allowance of up to £5 million where the first spouse or civil partner did not use their allowance.

The transferable Business Relief allowance is separate from the ordinary transferable nil-rate band and residence nil-rate band rules.

Which Business Assets Can Qualify for 100% Relief?

Subject to the £2.5 million combined allowance and the other qualifying conditions, assets that may qualify for 100% relief include:

• A qualifying business.
• An interest in a qualifying business, such as a partnership interest.
• Qualifying shares in an unlisted company.

For 2026/27, it would be incorrect to assume that all qualifying unlisted shares receive unlimited 100% BPR Inheritance Tax relief. The available £2.5 million allowance must also be considered.

AIM Shares and Business Relief From April 2026

From 6 April 2026, qualifying shares admitted to trading on recognised stock exchanges designated as “not listed”, including AIM, generally receive Business Relief at 50%.

These shares do not use the £2.5 million 100% relief allowance because they are subject to the separate 50% rate.

This is an important change for investors who previously relied on qualifying AIM shares receiving 100% Business Relief.

Which Assets Can Qualify for 50% Business Relief?

Subject to the relevant conditions, 50% Business Relief can apply to:

• Qualifying business or agricultural property above the available £2.5 million 100% relief allowance.
• Qualifying AIM and other relevant “not listed” traded shares.
• Shares controlling more than 50% of the voting rights in a listed company.
• Certain land, buildings or machinery owned personally and used by a qualifying business.

Receiving 50% relief does not mean the IHT rate itself becomes 50%. Instead, the taxable value of the qualifying asset is reduced by 50% before the IHT calculation is completed.

The Two-Year Ownership Requirement

A key Business Relief eligibility condition is the ownership period.

In most cases, the relevant business or asset must have been owned for at least two years before the transfer.

Buying qualifying shares shortly before death will therefore not usually produce immediate Business Relief simply because the underlying company carries on an eligible trade.

Which Businesses Do Not Qualify for Business Relief?

Business Relief is generally unavailable where a business, or the business carried on by a company, consists wholly or mainly of:

• Dealing in securities, stocks or shares.
• Dealing in land or buildings.
• Making or holding investments.

This can create issues for property businesses, investment companies and businesses combining substantial investment activity with normal trading operations.

The existence of a company, employees and commercial accounts does not automatically establish eligibility. HMRC looks at what the business actually does.

Trading Companies With Investment Assets

A trading company can also hold assets that do not qualify fully for Inheritance Tax Business Relief.

Business owners should therefore consider not only whether the company itself qualifies but also whether certain assets could be treated as excepted assets.

For example, large surplus cash balances or investments that are not required for future business use may need closer examination.

Business Relief and Lifetime Gifts

Business Relief can also be relevant where qualifying business property is transferred during the owner’s lifetime.

However, lifetime transfers require careful planning because the eventual IHT treatment can depend on whether the donor survives for seven years and whether the Business Relief conditions continue to be satisfied where required. Where business assets are transferred into a trust rather than directly to an individual, the interaction between Capital Gains Tax and trusts should also be reviewed separately from the IHT position.

Transitional provisions can also affect certain transfers made on or after 30 October 2024 where the donor dies on or after 6 April 2026 and within seven years of making the transfer.

Business Relief and Succession Planning

For many owner-managed and family businesses, the company represents a substantial proportion of the owner’s personal wealth.

The new £2.5 million limit makes succession planning especially important where qualifying business and agricultural assets exceed that amount. Reviewing the full changes to Agricultural and Business Property Relief introduced from April 2026 can help identify exactly how much of an estate’s value is affected.

A succession review should consider the current market value of the business, which assets are likely to qualify for Business Relief, whether the business remains mainly trading, whether personally owned business assets qualify only for 50% relief and whether a transferable allowance from a deceased spouse or civil partner may be available. Some business owners also use a trust as part of this wider succession strategy, so understanding what a trust actually is can be a useful starting point. A discretionary trust in particular is often considered where flexibility over future beneficiaries is important.

Paying IHT on Business Property by Instalments

Where qualifying business property is still exposed to IHT after Business Relief has been applied, the tax may be payable in equal annual instalments over ten years under the relevant rules.

For qualifying Business Relief property, these instalments can be interest-free under the rules applying from 6 April 2026.

This can reduce immediate cash-flow pressure on successors where an IHT liability remains.

Records Supporting a Business Relief Claim

Executors may need to demonstrate why business property satisfies the conditions for relief. Where a trust forms part of the succession arrangements, it’s also worth checking whether you need to register trusts with HMRC, since this is a separate compliance requirement.

Useful supporting records can include:

• Company accounts and tax returns.
• Share registers and ownership records.
• Partnership agreements.
• Evidence showing how long the asset was owned.
• Details of the company’s trading activities.
• Information about investment assets and surplus cash.
• Business valuations.
• Documentation showing how personally owned property is used by the business.

Common Business Relief Inheritance Tax Mistakes

• Assuming qualifying business assets receive unlimited 100% relief after 6 April 2026.
• Failing to recognise that the £2.5 million allowance is shared between qualifying agricultural and business property.
• Continuing to treat qualifying AIM shares as eligible for 100% relief.
• Assuming every private company automatically qualifies for Business Relief.
• Ignoring the two-year ownership requirement.
• Assuming all cash and investments held inside a trading company qualify.
• Failing to review whether the business has become mainly investment-focused.
• Overlooking the potential transfer of an unused allowance from a deceased spouse or civil partner.
• Using an outdated business valuation when estimating IHT exposure.

Reviewing Business Relief Eligibility in 2026/27

The 2026/27 Business Relief Inheritance Tax rules represent a substantial change for business owners whose succession plans were based on unlimited 100% relief.

Qualifying agricultural and business property can now receive 100% relief within the available £2.5 million combined allowance, while qualifying value above that allowance generally receives 50% relief. An unused allowance from a deceased spouse or civil partner can potentially increase the surviving spouse’s available allowance to as much as £5 million.

Business owners should therefore review both the value of their business and its underlying Business Relief eligibility. The fact that a business qualified historically does not guarantee that every asset, or the full current value, will escape IHT.

Case Study: Reassessing Business Succession After the New Business Relief Limit

An email enquiry came into our Fulham Broadway office from the owner of a long-established family trading company who was reviewing how the business would eventually pass to the next generation. The company had grown substantially in value, and the owner wanted to understand whether the business would still qualify fully for Business Relief Inheritance Tax following the changes introduced from 6 April 2026.

Our advisers reviewed the company’s ownership history, trading activities, current valuation and underlying assets to assess its Business Relief eligibility. Particular attention was given to surplus cash and investments held within the company, as well as whether the two-year ownership requirement had been satisfied. We explained how the new £2.5 million combined 100% Agricultural Relief and Business Relief allowance could affect the succession plan and why qualifying value above the available allowance generally receives 50% relief rather than unlimited 100% relief. We also considered whether any unused allowance from a spouse or civil partner could potentially be transferred. As part of the wider review, we supported the owner with Inheritance Tax planning, business valuation, Capital Gains Tax planning, personal tax advice, company accounting and business succession planning. This gave the family a clearer understanding of the potential IHT exposure and allowed them to review their succession arrangements using the 2026/27 rules rather than relying on the previous Business Relief regime.