Inheritance Tax changes: what do they mean for businesses?

As of 6 April 2026, the Inheritance Tax (IHT) landscape for business owners and farmers has changed significantly. Long‑standing assumptions around unlimited relief for qualifying business and agricultural assets will no longer apply, increasing the importance of proactive and carefully structured estate planning.

What is changing?

Agricultural Property Relief (APR) and Business Property Relief (BPR) have historically allowed qualifying assets to pass free of IHT, often at 100%, with no upper limit on value. Now, a new allowance applies so that 100% relief is capped at £2.5 million per individual, covering the combined value of assets qualifying for APR and BPR. Any qualifying value above £2.5m attracts relief at 50%, resulting in an effective IHT charge of 20% on the excess.

For married couples and civil partners, any unused portion of the £2.5m allowance can be transferred, creating a potential combined allowance of £5m between them. Relief will also apply within trusts, although trusts have their own allowance and are subject to periodic and exit charges, increasing the complexity of trust planning.

Certain assets previously relied upon for IHT planning are also affected. Shares listed on AIM and some overseas exchanges no longer qualify for 100% BPR, instead benefiting only from 50% relief.

The immediate impact

For many smaller and midsized businesses and farms, the reforms may not result in an immediate tax charge. However, for those with high-value trading businesses, development land, or significant farming estates, the changes are material.

Estate plans that previously assumed full shelter from IHT can now give rise to exposure on death, particularly where the value of qualifying assets comfortably exceeds the £2.5m threshold. Frozen nil-rate bands and rising asset values only add to this pressure. In practice, this means that liquidity planning becomes critical, as families may face an IHT bill without readily realisable assets to fund it.

There has already been a notable increase in last-minute trust planning ahead of the new rules, particularly involving trading company shares where an exit is anticipated and the loss of the capital gains tax (CGT) uplift on death is unlikely to be a concern.

Practical estate planning takeaways

The new regime does not remove relief, but it does require more deliberate use of it. Key points for business owners and farmers to consider include:

1. Review asset values early

Understanding the current and projected value of assets qualifying for APR and BPR is essential. This allows families to assess whether they are likely to exceed the available relief and by how much.

2. Consider lifetime gifting

Outright lifetime gifts remain potentially exempt transfers for IHT purposes and can be preferable to trust planning, which often gives rise to an immediate charge. Where assets qualify, CGT can often be deferred using holdover relief, allowing value to be transferred without triggering an immediate tax liability. Each case turns on its facts, but lifetime giving remains a powerful planning tool.

3. Use trusts selectively

Trusts can still play a role, particularly where control or asset protection is a priority, but the post-2026 rules mean they must be approached with care. The interaction between trust allowances, 10-year charges, and exit charges makes forward modelling essential.

4. Maximise spouse exemption strategically

In families where spouse exemption is available, there may be opportunities to gift qualifying assets on the first death to secure a CGT uplift, while preserving the full transferable APR/BPR allowance to set against assets retained for the survivor. This can improve overall tax efficiency without compromising family succession goals.

A more complex planning environment

Estate planning for those with family businesses, trading companies, and farms is now significantly more nuanced. Relief remains available, but only for those who actively plan for it. Early advice, realistic valuations, and revisiting long‑standing structures will be essential to ensure that relief is not wasted and that assets can pass smoothly to the next generation.

If you have questions or concerns about the IHT changes, please contact Camilla Bishop.