We explain business property relief in plain English so you can see what it means for your family and assets.
From 6 April 2026 a combined £1,000,000 cap will apply to full relief on qualifying interests. Amounts above that will get 50% relief, so the effective inheritance tax rate can rise to 20% on the excess.
We will set the scene on why inheritance tax has become more urgent for owners of trading concerns and land. This guide shows what HMRC means by qualifying interests and why the label on the tin does not always match the outcome.
We walk through how relief can lower the taxable value of assets and why that can keep a concern in the family rather than forcing a sale.
We flag common gotchas — ownership tests, trading versus investment, and assets not used in the business — so you read the rest with the right questions for advisers.
Key Takeaways
- From April 2026 a £1,000,000 cap limits full relief per person and per existing trust.
- Amounts above the cap get 50% relief, effectively a 20% inheritance tax on the excess.
- Not all labelled interests qualify; HMRC tests trading use and ownership length.
- Understanding qualifying assets can mean the difference between keeping an enterprise and a forced sale.
- Ask advisers about trusts, lifetime gifts, AIM shares and farm structures early.
Why Business Property Relief matters for inheritance tax planning in the UK
A thriving concern on paper can become a cash problem at probate.
Standard inheritance tax sits at 40% above the nil‑rate band (£325,000). That rate does not change when relief applies; instead, the taxable value of qualifying assets is reduced first. This difference is the crucial part of how relief helps.
Put simply: reducing value before the rate is applied can cut the final bill sharply. That matters when an estate is rich in holdings but poor in cash.
How a cash crunch can force bad choices
Executors often must pay IHT in cash within months. If relief is limited or capped, families may be pushed to borrow, sell shares, or sell part of the concern — often at short notice and on unfavourable terms.
“A high valuation with low cashflow creates the real risk — not the headline tax rate.”
- We break down how a 40% charge can arise and the maths behind reducing the taxable value.
- We highlight warning signs: rapid value growth with little matching cashflow.
- We stress timing: evidence and ownership periods matter for a successful claim, so act now rather than later.
In short, relief can change the way a family passes on what they built — but only if timing, evidence and liquidity are managed first.
What’s changing from April 2026 for BPR and Agricultural Property Relief
From 6 April 2026 a new cap limits full 100% relief to the first £1,000,000 of combined qualifying holdings per person or existing trust.
Above that figure relief drops to 50% on the excess. That commonly produces an effective 20% IHT charge on the over‑cap amount at death.
The combined £1,000,000 cap and the effect above it
Instead of separate allowances, agricultural property relief and business property relief now share a single cap. This means mixed assets compete for the same allowance.
Practically, once combined holdings exceed £1,000,000, the extra value will attract 50% relief and therefore a 20% inheritance tax cost on death.
Why non‑transferability between spouses matters
The allowance is not transferable on first death. Couples can no longer double the protected amount simply by waiting for the first partner to die.
This shifts the timing of decisions. Many families may consider earlier gifting, trusts or partial sales to manage future IHT exposure.
| Item | Before 6 Apr 2026 | From 6 Apr 2026 |
|---|---|---|
| Max full 100% protection per person | Effectively unlimited (subject to rules) | £1,000,000 combined |
| Relief on excess | Often 100% if qualifying | 50% on amount > £1,000,000 (20% effective IHT) |
| Transfer between spouses | Common planning allowed | Not transferable |
| Likely family actions | Later lifetime moves | Earlier gifting, trusts, or sales considered |
What counts as “business property” for relief purposes
HMRC tests what an asset does, not the label it wears. That practical test decides whether an item may qualify for relief.
Unlisted company shares and ownership interests
Shares in unlisted companies commonly qualify when the firm trades rather than holds investments. The company’s activity matters as much as the share certificate.
Ownership interests in a sole trade or partnership can also qualify. Evidence of active involvement, income flow and trading contracts helps prove the point.
Land, buildings and machinery used in trade
Land, buildings and machinery count if they are used in the running of the trade. If you merely rent out a building, it usually will not qualify.
Practical example: a personally owned workshop that the company uses may qualify if the use is integral and documented.
Quoted shares and control holdings
Control holdings in quoted companies rarely get full relief. In some cases, 50% relief applies instead of 100%.
“Control alone does not guarantee full protection — use and substance do.”
| Asset type | Typical outcome | Key test |
|---|---|---|
| Unlisted shares | Often 100% | Company carries on a qualifying trade |
| Partnership/sole trader interest | Often 100% | Active trading role and supporting evidence |
| Land/buildings/machinery | 100% if used in trade | Use in the business, not passive investment |
| Quoted control shares | Often 50% | Control but quoted status limits full relief |
Practical tip: check whether an asset is used in the trade and keep records of use and leases. For further detail on how this interacts with wider tax changes see our guide on business inheritance tax relief.
Eligibility rules HMRC applies to Business Property Relief
The key tests from HMRC focus on ownership length, the nature of activity, and actual use of assets.
Two-year ownership condition: an interest must usually have been held for at least two years before the relevant date. Reorganisations, recent share issues or last-minute transfers can reset the clock.
The two-year ownership condition and timing traps
Timing matters. If the holding changes shortly before death, or if shares are issued to a trust recently, the two years may not be met.
Watch out for corporate restructures. They can interrupt continuous ownership and block the claim.
Trading vs investment activities and where the line is drawn
HMRC asks whether the enterprise is trading, not merely holding investments.
Letting property, holding long-term securities or running an investment portfolio often points away from qualifying as trading.
When assets are excluded because they weren’t used for business purposes
Assets not used in the running of the trade are excluded. Examples: surplus cash, dormant investments, or personal assets not in active use.
- Quick checklist to self-test: held for two years; activity is predominantly trading; asset used in day‑to‑day operations.
- Keep contracts, invoices and minutes as evidence of use.
- For mixed activities, get specialist advice early — small changes can change the tax outcome.
How much relief can you get: 100% vs 50% rates
How an asset is held and used often decides whether it enjoys full protection or just a partial cut.
100% relief usually applies to unlisted company shares and direct ownership interests in a trading concern. If the company carries on a qualifying trade and the ownership tests are met, the taxable value of those shares can be reduced to nil for inheritance tax purposes.
When 100% relief is typically available
The clearest cases are qualifying unlisted shares and partnership or sole‑trader interests. The company’s activity must be trading, not merely holding investments.
Documents that help: up‑to‑date valuations, accounts showing trading income, shareholder agreements and minutes proving active use.
Common scenarios that only qualify for 50% relief
Personal land, buildings or machinery owned outside the company but used by a trading firm often get 50% rather than 100% relief. The same applies to shares in a quoted company where the donor had control.
That 50% position changes the taxable value — so a large asset can still leave a meaningful inheritance tax bill, especially once the post‑2026 £1,000,000 cap is applied.
- Practical check: confirm who owns the asset and how it is used day‑to‑day.
- Valuation proof: professional valuation, leases, invoices and service agreements support the claim.
- Ask advisers: check whether a qualifying trade test and the two‑year ownership rule are satisfied before relying on a rate.
“Proof of use and clear ownership records are often the difference between full cover and only half.”
business property relief estate planning strategies uk: choosing the right route
Deciding whether to pass a firm on at death or transfer shares during your lifetime is as much about family dynamics as it is about tax.
Passing at death keeps control and income until the end. It can preserve dividends for the owner. But the new £1,000,000 cap from 6 April 2026 changes the picture. The cap is per person and per pre‑existing trust and is not transferable between spouses.
Lifetime transfer can reduce immediate inheritance tax exposure. It may also disrupt income and control. Transfers are emotional. They affect family fairness and who runs the concern day‑to‑day.
Practical prompts and next steps
- Do you need dividends to live on?
- Is a successor ready and willing?
- Could ownership splits or existing trusts preserve more allowance?
Get advice before changing share classes or making large transfers. Small moves can lose relief. For a closer look at the £1m cap and options, see our guide on inheritance tax threshold £1 million.
| Route | Key benefit | Main risk |
|---|---|---|
| Pass at death | Keep control and income | Cap may limit full protection |
| Transfer in lifetime | Reduce future inheritance tax | Loss of income/control; emotional cost |
| Use pre‑existing trust | Separate allowance and succession | Complex setup; professional fees |
Lifetime gifting of business assets and the seven-year rule
Surviving a set period after a transfer often decides whether a gift stays outside the taxable estate.
Potentially exempt transfers mean a gift is ignored for inheritance tax if the donor lives seven years after the transfer. If the donor dies sooner, taper relief may reduce the charge, or full tax may apply.
Gift with Reservation and continued benefit
Gifts can be undone by the Gift with Reservation rules. If you keep using what you gave away, the value may be pulled back into your estate.
“Giving shares but taking the income back is a common trap that pulls the gift back for tax purposes.”
Capital Gains Tax and holdover relief
Giving assets can trigger Capital Gains Tax on any gain. For certain business assets and qualifying shares, holdover relief can defer the gain until the recipient later disposes of them.
| Issue | What happens | Practical step |
|---|---|---|
| Seven years | Gift becomes outside the estate if donor survives | Document the date and keep evidence of transfer |
| Gift with Reservation | Continued benefit can bring value back in | Avoid personal use or provide market rent |
| Capital Gains Tax | May arise on gifting assets | Check eligibility for holdover relief |
Practical checklist: record transfers, update share registers, agree dividend rights and get specialist advice early. Small steps now can protect value later.
Using trusts with business property to manage control and succession
A trust can separate legal ownership from day‑to‑day management so a business continues to run smoothly. That separation helps families keep control while protecting vulnerable beneficiaries.
Trusts are used to decide who votes, who gets income and what happens if relationships change. Trustees act as steady hands during transitions.
Trusts can also affect inheritance tax outcomes. From 6 April 2026, a £1,000,000 full‑relief allowance applies per person and per pre‑existing trust, so existing trusts deserve an early review.
When a trust supports long‑term protection
- Provide succession where not every family member is ready to run operations.
- Protect income for vulnerable beneficiaries without handing over control.
- Reduce the risk of a forced sale by smoothing decision making at a death.
What to review in a pre‑existing trust
Check the trust deed, any letters of wishes, company articles and historic transfers. Clear documents reduce disputes.
Practical steps: update governance, confirm trustee powers, and evidence transfers to preserve the trust’s allowance and intended outcomes.
“A well‑governed trust is often the difference between smooth succession and a family dispute.”
Combining BPR with Agricultural Property Relief for farms and rural estates
When agricultural land and a trading farm sit together, the rules for relief overlap and can surprise families.
What APR covers: qualifying farmland and farm buildings used in farming can get agricultural property relief. The trading arm — machinery, livestock trading or a farm shop — may qualify under business property relief.
How the two interact
From 6 April 2026, 100% cover is capped at a combined £1,000,000 per person or pre‑existing trust. Above that, amounts get 50% relief, creating an effective 20% IHT on the excess. This makes land‑rich holdings vulnerable even if cashflow is low.
Practical structuring points
- Keep clear records showing what land is used for and who occupies it.
- Separate trading activities and passive lettings to protect qualifying parts.
- Discuss fairness of succession where some children work on the farm and others do not.
| Element | Typical outcome | Key evidence |
|---|---|---|
| Farmland | Often 100% under APR (if qualifying) | Farming use, tenancy or occupation records |
| Farm buildings | May qualify under APR or BPR | Usage logs, repairs, business accounts |
| Trading activities | Likely BPR if genuinely trading | Sales records, staff, contracts |
Talk to land agents, accountants and solicitors early. For a detailed explanation of the 2026 change see the update on 2026 agricultural and property relief changes.
AIM shares and Business Relief: investor-led options and risks
AIM-listed shares attract attention for succession planning thanks to potential tax benefits, yet the detail matters more than the label.
Certain AIM holdings may qualify for inheritance tax relief if the underlying company carries on a qualifying trade and the usual conditions are met.
How AIM holdings can qualify and what “qualifying trade” means
Qualifying trade means the company’s main activity is trading, not holding investments. Evidence of sales, staff and customers matters.
The typical two‑year ownership test applies. A short holding or a recent corporate restructure can block a claim.
Volatility, concentration risk, and suitability for wealth planning
AIM shares can be volatile. A relief-driven position can lose value quickly if the market falls.
Concentration risk is real. Relying on one stock to save tax can reduce long‑term wealth.
- Check the company’s activity and accounts before investing.
- Keep the two‑year horizon in mind and avoid last‑minute moves.
- Consider diversification rather than swapping cash for a single AIM holding.
| Aspect | What to check | Risk |
|---|---|---|
| Qualifying trade | Trading revenue, employees, contracts | Investment holding status may disqualify |
| Holding period | Two years continuous ownership | Recent gifts or issues can reset clock |
| Suitability | Fits long horizon and risk tolerance | Short-term needs may suffer from volatility |
Practical note: AIM shares are an option, not a substitute for passing on your own firm. Business owners should prioritise core succession before using market investments to target tax outcomes.
We recommend regulated financial advice when using AIM portfolios to support inheritance goals. That step protects both your wealth and family plans.
Family governance and succession planning in light of IHT reforms
Succession succeeds when families agree on purpose before they agree on shares. We start with values and a clear vision. That way decisions fit the family, not just the numbers.
Starting with purpose: values, vision, and who the “family” is
Agree who counts as family. Include in‑laws and future generations where needed. Write a short statement of values. Keep it simple and shared.
Defining roles, appointment and removal processes
Define who runs day‑to‑day and who has final say. Use clear appointment and removal steps. Written rules avoid assumptions and reduce disputes.
Documenting dividends, distributions and cashflow expectations
Record how dividends and distributions work. Set expectations for income and any lifetime gifts. That reduces friction when money and control move.
Bridging the Next Gen readiness gap
STEP Journal commentary (July 2025) warns reforms may drive more lifetime gifting. US research shows an 85% Next‑Gen readiness number versus 39% for family offices. Train successors. Small, practical steps protect wealth and smooth inheritance outcomes.
Common pitfalls that can reduce or eliminate relief
Small changes in how assets are used can quietly strip away tax cover when you least expect it.
Investment-heavy activity and the “wholly or mainly” test
If a company shifts from trading to holding investments, HMRC can deny relief. Large passive holdings, rental income or long-term securities often break the test.
Selling and the three-year reinvestment window
Proceeds from a sale lose qualifying status unless reinvested into another qualifying company within three years. Miss the window and the cash is treated as non-qualifying.
Valuations, evidence and HMRC challenge at probate
Claims are submitted at probate and often face scrutiny. Weak valuations, missing minutes or no trading narrative invite challenge.
- Good evidence: accounts, contracts, board minutes and invoices.
- Clear valuation reports and explanations for minority discounts.
- Documentation showing assets are used in the day-to-day running of the company.
Before you gift shares or sign sale papers, check assumptions with specialist advice. For the holdover timing rules see our note on the three‑year window: discover the hold‑over time limit.
Conclusion
The post‑2026 cap changes the math for many family holdings, so acting early matters.
Relief still matters. But the new £1,000,000 combined cap and 50% cover above it mean more inheritance tax may fall due at death. Small errors on timing, ownership or evidence can cost dearly.
Check what qualifies in your company and your land. Stress‑test cash needs. Document governance, update wills and align shareholder agreements so the story at probate is clear.
Gifts and lifetime transfers can help, but only when they suit income needs and family readiness. Speak to a qualified adviser team to test assumptions and make practical changes that protect wealth and keep the family on steady ground.