As published first in Professional Adviser.
The chancellor announced in last year’s Budget that the rules around BPR will change from April 2026. Here, Stephen Kenny outlines the new rules and assesses what they mean for business owners.
Business property relief (BPR) has been a long-standing relief first introduced in 1976 to help family-owned businesses survive being passed down from one generation to another.
The 100% rate for BPR was introduced in 1996 and since then has been the backbone of planning for family-owned businesses as the 100% rate allows qualifying businesses to be passed on with no tax.
However, the chancellor announced in last year’s Budget that the rules around BPR will change from April 2026. This article outlines the new rules and assesses what they mean for business owners.
What qualifies for BPR?
There are two rates for BPR, either 50% or 100%:
100% |
50% |
|---|---|
A business or an interest in a business |
Quoted shares which give control of the company |
Unquoted shares |
Land or buildings, machinery or plant used wholly or mainly for the purpose of a business carried on by a company or partnership |
Unquoted securities which on their own or combined with other unquoted shares or securities give control of an unquoted company |
Land or buildings, machinery or plant available under a life interest and used in a business carried on by a beneficiary |
To qualify for BPR, the property must have been held for two years, although there are exceptions for replacement property and successive owners.
What is changing?
There are two key changes that will be introduced from April 2026:
At present, BPR is uncapped. From April 2026, the 100% rate will apply for the first £1 million of combined agricultural and business property. Amounts over the £1 million limit will qualify for 50% relief.
At present, shares that are ‘not listed’ but traded on markets of recognised stock exchanges qualify for relief at 100% as they are considered unquoted. A primary example of these is shares listed on the AIM market. From April 2026, all shares on recognised stock exchanges will qualify for BPR at 50% rather than 100%.
What do these changes mean?
HM Revenue & Customs believe that 75% of businesses that claim either BPR or agricultural property relief will be unaffected by the new £1m cap.
However, for affected businesses, this change is likely to have a significant impact: assets that receive 50% relief will be subject to inheritance tax (IHT) at an effective rate of 20%. If the desire is for a business to stay in the family, a dry tax charge on a family member is likely to be a significant burden. Often, businesses might not be cash-rich, and finding the cash to pay the liability may be a challenge.
What can affect business owners?
The first thing every business owner should do is review their current BPR position. You need to be sure you understand the current position of your business and the impact of the change.
Once you know the current status and impact, you can plan for how to deal with the impact in a way that will work for you and your business:
Make sure you are using all the available relief: The £1m cap applies per individual and cannot be transferred between spouses (unlikely other reliefs such as the nil rate band). While historically, there would have been no need to split qualifying BPR assets between spouses, business owners may want to look at sharing the ownership of companies so each spouse can make use of their allowance. Ideally, each spouse should hold at least £1m of qualifying BPR assets, as an unused amount on their death is not inherited by the surviving spouse.
It is important to understand that the £1m is effectively a ‘lifetime allowance’. This means that the £1m will cover not only assets in the estate on death but also gifts made in the seven years before death and lifetime transfers into trust.
In practical terms, this means that individuals will have a seven-year rolling cycle in which the allowance will refresh. So, business owners will need to take a long-term approach to succession planning, with a series of lifetime gifts over a longer period of time.
As set out above, the effective rate for assets that qualify for BPR at 50% is 20%; this is lower than the main rate of capital gains tax (CGT) at 24%.
Assets in the estate at the date of death qualify for a CGT uplift to the market value at the date of death. This means that qualifying assets will pay IHT at a maximum of 20%, but if they were disposed of in a lifetime, they would have paid CGT of up to 24%.
When making lifetime gifts of business assets, it is possible to elect to hold over the capital gains. This means that the recipient receives the gift at the original base cost.
Whilst doing this may avoid a dry tax charge on death, it may, in the long run, result in an overall higher tax liability. In those situations, it may be better to plan for the charge.
IHT is normally due at the end of the sixth month after death. From April 2026, IHT may be paid over ten annual instalments.
These will be interest-free (unlike current instalment options).
It is important for each business to understand what its exposure will be from April 2026. They can then work with their advisers to ensure they can meet their succession goals whilst minimising any unnecessary tax charges and planning for any tax that might fall due.
Some investment in time now can help minimise disruption to your business in the future.
