After a very busy Autumn Budget, the Spring Statement revealed little in the way of taxation changes with more of a focus on tackling tax evasion in a bid to close the tax gap.
Whilst the Chancellor Rachel Reeves did not introduce any new tax changes, several measures announced in the Autumn Budget took effect from 6 April 2025 and further changes are proposed to take effect over the next two years.
Arguably the most significant of these is the reform to Business Relief (“BR”) from 6 April 2026. Under the proposed changes, family-owned and private businesses could face significant inheritance tax liabilities that were previously 100% relieved by BR. This has left many businesses and families at a loss with how to protect family ownership and ensure business continuity on the death of a shareholder.
Key points:
- This significant change to the IHT profile of businesses will apply from April 2026.
- There are options to maximise relief, but some of these options disappear next April.
- All business owners and businesses should review their position. For some, doing nothing might be the right answer.
What is Business Relief?
Business Property Relief, or Business Relief as it is often known, reduces the value of a business for IHT purposes. It is available on the transfer of business assets during an individual’s lifetime or on death. To qualify, the relevant business assets must be owned for two years before the transfer in most circumstances.
BR was first introduced in the 1970s to protect the legacy of privately owned businesses meeting certain conditions, allowing them to operate following the death of an owner, where otherwise the businesses may need to be broken up or sold to pay the IHT liability.
BR is also available for those who invest in qualifying businesses through share ownership. This has been very attractive from an IHT planning perspective as it reduces the amount subject to 40% IHT in an individual’s estate if held for two years as opposed to the seven-year rule which applies to gifts.
Those investing can also retain access to the investments and any dividend income stream, meaning an individual maintains control and access whilst benefiting from an IHT-friendly environment.
The relief is excluded for certain businesses that wholly or mainly consist of dealing in stock or securities, land or buildings or making or holding investments (other than in companies which themselves qualify for relief).
Current Business Relief rules
Under the current rules, qualifying business owners can pass unquoted shares in a qualifying business to the next generation with 100% relief from inheritance tax.
You may qualify for 100% Business Relief on:
- Shares you own in a qualifying trading business, for example, your unquoted family company.
- Shares you own in other trading companies, which might be investments. This includes companies listed on the Alternative Investment Market.
- EIS and SEIS shares.
You may receive 50% Business Relief on:
- Shares you own in a quoted company, if you have more than 50% of the voting rights.
- Your land, buildings or machinery if they are used wholly or mainly for the business.
Business Relief exemptions:
- Business Relief will not apply if your shares are in a business that deals in securities, stocks and shares, land or buildings, or making or holding investments, including shares are not exempt from business relief.
- This particularly impacts you if you are a landlord with a rental property or have shares in a property rental company.
Rule changes from the Autumn Budget
From April 2026, business owners who were expecting to pay £nil inheritance tax on their shares may now face significant inheritance tax liabilities.
With effect from 6 April 2026:
- The 100% rate of relief will be capped at the first £1 million of business property, and will be 50% thereafter.
- The government will also reduce the rate of business property relief available from 100% to 50% in all circumstances for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM.
- Assets automatically receiving 50% relief, for example quoted shares in a company giving the transferor control, will not use up the allowance and will continue to receive 50% relief.
- Any unused allowance will not be transferable between spouses and civil partners.
- There will be a combined £1 million allowance for trustees of “relevant property” trusts on the value of qualifying property to which 100% relief applies.
- Settlors may have set up more than one trust comprising qualifying business property before 30 October 2024, in which case from 6 April 2026, each trust would have a £1 million allowance for 100% relief.
For individuals, these changes could affect:
- Property transferred on death.
- Gifts made to individuals in lifetime.
- Chargeable lifetime transfers, such as transfers into trusts, made in lifetime.
For trustees these changes could affect:
- Ten-year anniversary charges.
- Exit charges.
The government have outlined a full summary of how these rules are proposed to apply, including during the transitional period between 30 October 2024 and 5 April 2025, in their consultation document published 27 February 2024 here.
What questions should business owners be asking themselves pre-April 2026?
Now faced with significant inheritance tax exposure, business owners should be reviewing their wills, assets and business and personal succession plans in order to make informed decisions about their wealth.
There is an interplay between IHT and other taxes, in particular Capital Gains Tax (“CGT”) and IHT planning should not be looked at in isolation.
Business owners should consult their tax adviser to understand their options to optimise their tax position before the rules change in April 2026.
Some of the key questions and planning strategies include:
- Does your business qualify for business relief? Can restructuring be undertaken to maximise relief?
- What is the market value of your shareholding, including minority discounts?
- Would the estate be able to fund the new inheritance tax liability with liquid assets?
- Would the estate have to sell the shares to fund the liability? If so, who are the possible buyers?
- Should you be accelerating your succession plans in lifetime? If so, what is the succession plan and what are the wider tax implications, including capital gains tax and income tax interactions?
- Are your children or management team ready to take over the business? What support will they need?
- Should you or the business take out insurance to cover the liability or the seven-year period after a lifetime gift is made?
- As each individual is expected to have a £1m allowance, should you consider gifting business property to other family members? For example, equalising business holdings between spouses, or passing shares to children, noting there will be tax implications of doing this.
- Should you be considering a sale of the business in lifetime and what are the comparative tax implications of sale vs succession?
- Should you be considering transferring qualifying assets to a new or existing trust pre-April 2026? What would be the ongoing tax implications?
The tax legislation can be complex and there are often interactions between inheritance tax and other legislation, such as capital gains tax and anti-avoidance legislation. Consulting with your tax adviser before taking action to consider the full picture is essential and any planning should align with your personal objectives.
Get in touch
If you have any concerns regarding possible changes to Business Relief or would like to look at protecting your business legacy, please do not hesitate to get in touch.
