Business Property Relief
Business Tax TipsMerranti

The Impact on Business Property Relief (BPR) and Succession Planning

The Autumn Budget 2024 introduced sweeping changes to inheritance tax (IHT), particularly targeting Business Property Relief (BPR) and Agricultural Property Relief (APR). These changes are set to take effect from 6 April 2026, significantly altering the way business owners plan for succession and estate tax efficiency.

For many owner-managers, these revisions disrupt long-standing assumptions about the best ways to pass down business assets tax-efficiently. The once straightforward strategy of holding onto shares until death—ensuring 100% BPR and a capital gains tax (CGT) uplift to market value—is no longer as effective. This means that new strategies must be considered to mitigate the impact of these changes.

The Previous BPR Rules: How Things Used to Work

Historically, shareholdings in unquoted trading companies were fully exempt from IHT if:
The shares were held for at least two years.
The company was a qualifying trading company.
No substantial assets were being used for non-business purposes (such as surplus cash).

This 100% relief allowed business owners to:

  • Avoid IHT on the full value of their shares.
  • Benefit from CGT rebasing on death (eliminating latent CGT liabilities).
  • Retain control of their business without triggering significant tax costs.

As a result, many owner-managers chose not to transfer shares during their lifetime, often leading to poor succession planning, with their children or senior management lacking an equity stake in the business.

The New BPR Rules from 6 April 2026

While 100% BPR is still available, it is now capped at £1 million per individual. Any value above £1 million only qualifies for 50% BPR, meaning that 20% IHT is payable on the remaining amount.

Additionally:

  • The £1 million limit applies across both BPR and APR (for business and agricultural property combined).
  • Unused BPR allowances cannot be transferred between spouses (unlike the IHT nil-rate band).

Example: BPR Before and After 6 April 2026

Example 1: BPR Under the Old Rules (Before 6 April 2026)

Vera, an owner-manager, dies on 3 February 2025. She owns 78% of a trading company, valued at £1.24 million.

  • Under the old rules, Vera qualifies for 100% BPR, meaning no IHT liability.

Example 2: BPR Under the New Rules (After 5 April 2026)

Vera instead dies on 1 May 2026 with the same company shareholding.

  • Under the new rules, BPR is capped at £1 million.
  • The remaining £240,000 of shares qualifies for only 50% BPR, leaving £120,000 subject to IHT at 40%.
  • This results in an IHT charge of £48,000 on her estate.

Who Will Be Most Affected?

While many owner-managers with businesses valued below £1 million may not be directly impacted, those with larger businesses will need to rethink their tax planning strategies.

Business owners with significant equity in trading companies should start planning for succession sooner rather than later.
The value of a business can increase rapidly, meaning that today’s £800,000 business could exceed £1 million by 2026.

How Can Business Owners Reduce Their IHT Exposure?

1. Making Lifetime Gifts to Family Members

A common strategy is to gift shares to children or other family members while still alive.

  • Such gifts qualify as Potentially Exempt Transfers (PETs) and will be fully IHT-free if the donor survives for seven years.
  • Capital gains tax (CGT) can be deferred using Holdover Relief (under TCGA 1992, s.165).

Caution: If a child gets divorced after receiving gifted shares, those shares could form part of the divorce settlement, leading to ownership dilution.

Alternative Approach: Instead of direct gifting, owners can transfer shares into a family discretionary trust, which offers asset protection but is still subject to IHT rules.

2. Using Discretionary Trusts to Protect Family Wealth

Placing shares into a family discretionary trust allows the owner-manager to retain some control over how shares are distributed while protecting them from divorce settlements or poor financial decisions.

New Risks:

  • Under the new BPR rules, trust transfers after 30 October 2024 will only qualify for 50% BPR on values over £1 million if the transferor dies within seven years.

3. Spousal Transfers and Will Revisions

While spouses cannot inherit unused BPR allowances, careful estate planning can still help.

Transferring some shares to a spouse during their lifetime ensures that both partners use their £1 million BPR allowances fully.
Avoid ‘bunching’ of shares on the surviving spouse’s death, which could result in IHT charges on amounts exceeding £1 million.

Potential Issue: Many wills pass shares entirely to the surviving spouse, causing the business interest to exceed £1 million when inherited.
Solution: Leaving some shares to a discretionary trust rather than directly to the spouse ensures that each partner’s £1 million BPR limit is used efficiently.

Anti-Forestalling Rules: Why Acting Now is Crucial

The new BPR rules apply from 6 April 2026, but a key anti-forestalling rule means that lifetime transfers made after 30 October 2024 are already subject to these restrictions if the donor dies after 5 April 2026.

Example: Anti-Forestalling in Action

Aiden owns 100% of a logistics company, valued at £2.8 million.

  • In December 2024, Aiden transfers 30% of his shares into a family discretionary trust (valued at £2.8 million).
  • If he dies before 6 April 2026, the transfer qualifies for full 100% BPR, meaning no IHT is payable.
  • If he dies after 6 April 2026, the transfer is recalculated using the new BPR limits, leaving £900,000 subject to IHT at 40%.
  • His estate now owes £230,000 in IHT on the transfer.

Key Takeaway: Transfers made after 30 October 2024 may still face the new BPR limits if the donor dies after 5 April 2026.

Final Thoughts: Time to Act Now

The Autumn Budget 2024 changes to BPR mean that business succession planning is now more urgent than ever.

Review your estate plan and business succession strategy immediately.
Consider making gifts or restructuring business ownership before 6 April 2026.
Explore discretionary trusts or share transfers to fully utilise the available BPR relief.
Update your will to ensure business assets are distributed tax-efficiently.

The window for maximising 100% BPR is closing, and owner-managers who act early will be in a far stronger position to protect their wealth and business legacy.

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