For decades, Business Property Relief (BPR) has been one of the most valuable tax reliefs available to UK business owners.
The rules were designed to prevent successful family businesses from being broken up or sold simply to fund an inheritance tax bill. For many entrepreneurs, BPR has allowed business shares to pass from one generation to the next with little or no inheritance tax liability.
However, the landscape has changed significantly.
From 6 April 2026, new restrictions apply to Business Property Relief, potentially increasing inheritance tax liabilities for many business owners and their families. While smaller businesses may remain largely unaffected, owners of successful SMEs, family-owned companies and larger trading businesses should carefully review their estate planning arrangements.
What Is Business Property Relief?
Business Property Relief is an inheritance tax relief available on certain qualifying business assets.
Traditionally, many qualifying business interests could benefit from 100% inheritance tax relief, meaning that shares in a qualifying trading business could pass to the next generation free from inheritance tax, regardless of value.
This relief has been a cornerstone of succession planning for business owners and has helped preserve family businesses across multiple generations.
What Changed on 6 April 2026?
The Government introduced a cap on the amount of business and agricultural property that can qualify for full relief.
A new £2.5 million allowance now applies to the combined value of assets qualifying for 100% Business Property Relief and Agricultural Property Relief.
Under the new rules:
- The first £2.5 million of qualifying assets receives 100% relief.
- Qualifying assets above £2.5 million receive only 50% relief.
- Assets benefitting from 50% relief face an effective inheritance tax rate of approximately 20% rather than 0%.
For the first time, many successful business owners may have a meaningful inheritance tax exposure on their company shares.
A Simple Example
Imagine an entrepreneur owns a trading company worth £6 million.
Prior to April 2026
- £6 million qualified for 100% BPR.
- Inheritance tax liability on the business: £0.
After April 2026
- First £2.5 million qualifies for 100% relief.
- Remaining £3.5 million qualifies for 50% relief.
- Effective inheritance tax exposure on the excess could be approximately £700,000.
For many families, that is a substantial liability that may need to be funded without selling business assets.
Why SME Owners Should Be Concerned
Many business owners have focused on growing their companies rather than revisiting succession plans.
As businesses have increased in value, plans that were once suitable may no longer be fit for purpose.
A business that was valued at £1 million ten years ago may now be worth £5 million, £10 million or more.
The new rules mean that company growth can now create a future inheritance tax challenge that previously did not exist.
Five Areas Business Owners Should Review
1. Business Valuation
Many owners do not know what their business would realistically be worth on death.
Inheritance tax planning starts with understanding the potential value of the business.
Without a valuation, it is impossible to understand whether the new BPR limits are likely to affect the family.
2. Shareholder Structures
Some businesses remain solely owned by one individual.
Where appropriate, ownership structures may require review as part of wider estate planning discussions.
Business owners should ensure that any ownership arrangements continue to support both commercial objectives and family succession goals.
3. Succession Planning
Many families assume children will simply inherit the business.
However, questions such as:
- Who will run the business?
- Are all children involved?
- Should active children inherit more shares than non-active children?
- How will inheritance tax be funded?
often remain unanswered until it is too late.
The reduction in available relief makes these conversations more urgent.
4. Shareholder and Partnership Agreements
Many business agreements were written years ago on the assumption that BPR would remain largely unrestricted.
The new tax environment provides an opportunity to revisit:
- Shareholder agreements
- Partnership agreements
- Buy-sell arrangements
- Family constitutions
to ensure they remain aligned with long-term objectives.
5. Liquidity Planning
One of the greatest risks is that family members inherit a valuable company but lack sufficient cash to settle an inheritance tax bill.
Without planning, beneficiaries could face difficult choices such as:
- Borrowing funds
- Paying tax from personal resources
- Selling shares
- Selling business assets
None of these options may be attractive, particularly during a period of bereavement.
Alternative Investment Market (AIM) Portfolios Also Face Changes
Many investors have historically used AIM portfolios as an inheritance tax planning tool.
The Government has reduced the level of Business Property Relief available for certain shares traded on recognised exchanges designated as "not listed", such as AIM shares, from 100% to 50%.
Investors who have relied heavily on AIM portfolios for inheritance tax planning should review their arrangements carefully.
Some Positive News
The reforms are not entirely negative.
The Government has extended the ability to pay inheritance tax relating to qualifying business and agricultural property by annual instalments over ten years. [gov.uk]
While this does not remove the liability, it may make funding more manageable for families who inherit business interests.
In addition, unused portions of the new allowance can be transferred between spouses and civil partners, potentially increasing the available relief for married couples. [gov.uk]
What Should Business Owners Do Now?
The worst approach is to assume that nothing has changed.
SME owners should consider:
- Obtaining an up-to-date business valuation.
- Reviewing wills and estate plans.
- Assessing potential inheritance tax exposure.
- Reviewing shareholder and partnership agreements.
- Considering succession planning for the next generation.
- Ensuring sufficient liquidity exists to meet future tax liabilities.
The earlier planning begins, the more options are typically available.
Final Thoughts
The Business Property Relief reforms introduced from 6 April 2026 represent one of the most significant changes to inheritance tax planning for entrepreneurs in a generation. While many smaller businesses will continue to benefit from substantial relief, owners of successful SMEs and family businesses may face inheritance tax costs that previously did not exist.
For many business owners, the company is their largest asset and their life's work. Taking time to understand how the new rules affect the family business could be one of the most valuable planning exercises undertaken over the next few years.
This article does not constitute tax, legal or financial advice and should not be relied upon as such. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.
This article is provided for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial product. For guidance, seek professional advice.