Inheritance Tax & BPR: Impact of the 2026 Reforms

Last year’s Autumn Budget brought significant proposed changes to Inheritance Tax (IHT) reliefs, specifically impacting Business Property Relief (BPR). These represent the most substantial changes to these reliefs since 1992, potentially affecting countless businesses.

Death is something of a culturally taboo subject or something we are scared to talk about, but it’s vital you are aware of what taxes might be applicable when the worst does happen. The changes to BPR make it more important than ever to understand how IHT affects your business and what steps you can take to mitigate its impact.

This article explains the key changes to BPR and offers practical advice on how to prepare.

Understanding Business Property Relief (BPR)

Before diving into the reforms, it’s crucial to understand the basics.

Business Property Relief (BPR) is a key relief from Inheritance Tax (IHT) designed to protect family businesses and other qualifying enterprises. It covers qualifying company shares, self-employment or membership in trading partnership businesses. It can also include assets used in a business.

Proposed changes in 2026

From 6 April 2026, the following changes are proposed:

• A £1 Million Allowance: A new £1 million allowance per person will be introduced. Assets that currently qualify for 100% relief will continue to do so, but only up to the value of this £1 million allowance.
• 50% Relief Above the Allowance: For assets exceeding the £1 million allowance, relief will be reduced to 50% of the asset’s value. This is a significant shift, especially for larger estates.
• Trusts and the Allowance: Similar rules will apply to trusts within the ten-yearly IHT regime, with a £1 million allowance allocated per trust. However, specific details regarding the application of these rules to trusts are still pending clarification from the government.
• AIM Shares Impacted: Shares listed on the Alternative Investment Market (AIM), previously a popular IHT planning tool, will now only qualify for 50% BPR and will not fall under the £1 million allowance. This change will have a widespread impact on many investment portfolios.
• Anti-Forestalling Rules: To prevent tax avoidance ahead of the changes, specific anti-forestalling rules have been introduced. Gifts made on or after Budget Day (30 October 2024) will be subject to the new rules if the donor dies on or after 6 April 2026 but within seven years of the gift. Additionally, new trusts established on or after Budget Day will share a single £1 million allowance, preventing the creation of multiple trusts to maximise relief.

The good news: Lifetime gifting remains

Despite these changes, lifetime gifting remains a valuable IHT planning strategy. Gifts where the donor survives seven years continue to be exempt from IHT. Furthermore, the qualifying conditions for business property itself have not been altered.

It important to note that the above are proposed changes. There is a lot more detail expected from the government before these changes come into effect.

How do the BPR changes impact business partnerships?

The changes to BPR will have a significant impact on partnerships. Because the £1 million allowance applies per individual, a properly structured spouse partnership could benefit from £2 million in allowances, in addition to their existing nil-rate bands. The same principle applies to shares in family companies, where each individual shareholder has their own allowance.

This presents valuable planning opportunities. With careful structuring and the application of the 50% BPR rate, a married couple could potentially access up to £3 million of relief.

For instance, if a business is valued at £3 million, the first £2 million could be covered by the couple’s combined individual allowances. The remaining £1 million would then be subject to the 50% BPR/APR, reducing the taxable amount to £500,000. This remaining amount would then be further reduced by the available nil-rate bands.

Should I review my will?

In light of these upcoming changes, reviewing your will and initiating succession planning would be prudent.

Here are some key considerations to discuss with us:

• Carefully plan business asset transfers, exploring options such as lifetime gifting, potentially exempt transfers, and the new anti-forestalling rules
• Simply leaving everything to a spouse may limit the total relief available to the couple under the new rules
• Ensure your existing life insurance remains adequate given these changes

We can assist with succession planning and wills (via our sister company, A4G Legacy) and review existing structures. Contact your Principal Adviser now or click the button below to request a free 1-2-1.

Why business valuations are crucial for IHT planning

As we said at the beginning often people can panic about what inheritance tax they will pay without knowing how exposed their estate really is.  The first two step to take are:

1. Have your business interest valued
2. Draw up a personal balance sheet, listing your assets and liabilities as they are today

These steps will provide a clearer indication of your potential IHT liability, forming the foundation of effective estate planning.