TRW & Co · UK tax
Business and Agricultural Property Relief Reform
The business property relief changes in force from 6 April 2026 cap full inheritance tax relief at a combined £2.5 million per person for business and agricultural property, with 50% relief above that. Unused allowance passes to a surviving spouse, AIM shares get 50% relief, and the tax can be paid interest-free over ten years.
Key pointThe allowance is transferable between spouses and refreshes over seven years, so a coordinated plan for both spouses, with lifetime gifts made early, shelters far more at 100% than waiting for the first death.
At a glance
£2.5 million allowance
From 6 April 2026, 100% relief applies to the first £2.5 million of combined business and agricultural property; qualifying value above it gets 50% relief.
Transferable between spouses
Unused allowance passes to a surviving spouse or civil partner, so a couple can shelter up to £5 million of qualifying property at the full rate.
AIM shares at 50%
Shares on exchanges designated as not listed, such as AIM, now receive 50% relief in all circumstances and do not use the allowance.
Interest-free instalments
Inheritance tax on any property eligible for agricultural or business property relief can be paid in ten equal annual instalments without interest.
Indexation after 2031
The Finance Act 2026 links the allowance to the consumer prices index, but no increase can take effect before 6 April 2031.
Swipe or scroll →
The short answer: business property relief changes from April 2026
The business property relief changes that took effect on 6 April 2026 end unlimited 100% inheritance tax relief for family businesses and farms. Each individual now has a £2.5 million allowance covering the combined value of property qualifying for 100% business property relief (BPR) or agricultural property relief (APR). Qualifying property above that amount gets relief at 50%, so the effective inheritance tax rate on the excess is 20% rather than 40%.
Any unused allowance can pass to a surviving spouse or civil partner, so a couple can shelter up to £5 million at the full rate. Shares admitted to trading on exchanges designated as “not listed”, such as AIM, now get 50% relief in all cases. Inheritance tax on property qualifying for either relief can be paid in ten equal annual instalments, interest-free.
The reforms are in Schedule 12 to the Finance Act 2026. They were announced at Autumn Budget 2024 with a £1 million allowance. That figure was raised to £2.5 million in December 2025, before the legislation was passed.
How business property relief worked before, and what still applies
Business property relief is in Chapter 1 of Part 5 of the Inheritance Tax Act 1984. Before April 2026, interests in a trading business and unquoted shares in a trading company generally qualified for 100% relief, with no upper limit. Controlling holdings of quoted shares and certain assets used by a business qualified at 50%.
The qualifying conditions are unchanged, so the gateway to relief still matters as much as the rate:
- Two-year ownership. The property must normally have been owned for at least two years before the transfer.
- Trading, not investment. Relief is denied where the business consists wholly or mainly of dealing in securities, land or buildings, or making or holding investments.
- Excepted assets. Assets not used for the business, such as surplus cash or investment property held inside a trading company, can be excluded from relief.
- Binding contracts for sale. Relief can be lost where the property is subject to a binding contract for sale at the time of transfer, a point that often affects shareholder agreements.
Agricultural property relief has its own conditions on occupation and ownership. Because the new allowance is shared, farmers who also hold trading company shares need a single view of both.
What the business property relief changes actually do
The government’s policy paper on the APR and BPR changes summarises five measures, all effective from 6 April 2026:
| Measure | Before 6 April 2026 | From 6 April 2026 |
|---|---|---|
| Rate on qualifying unquoted business property | 100% with no cap | 100% up to the £2.5 million allowance (shared with APR); 50% above it |
| Transfer between spouses and civil partners | Not applicable | Unused allowance transferable to the survivor; assumed fully available if the first death was before 6 April 2026 |
| Shares on “not listed” exchanges (such as AIM) | Generally 100% | 50% in all circumstances, outside the allowance |
| Instalment option | Available for some property, with interest in some cases | Ten equal annual instalments, interest-free, for all property eligible for APR or BPR |
| Trusts | Relief at the same rates as individuals | Separate £2.5 million allowance rules for relievable property in trusts |
The allowance works on a rolling seven-year basis. Under the new section 124D of the Inheritance Tax Act 1984, the allowance available on a transfer is £2.5 million less the amount of 100% relief used on chargeable transfers in the previous seven years. Lifetime gifts that become chargeable on death within seven years use up allowance that would otherwise be available to the estate.
The Finance Act also provides for the allowance to rise each year in line with the consumer prices index, but no increase can take effect before 6 April 2031. Budget 2025 had already fixed the figure, and the nil-rate bands, until then.
Gifts made before April 2026
The new rules also reach back. Where a gift was made after 29 October 2024 but before 6 April 2026, and the donor dies on or after 6 April 2026 within seven years of the gift, the new rules generally apply in calculating tax on that gift. Anyone who made a substantial gift of business shares after the October 2024 Budget should assume it is within the new regime if they die within seven years.
Trusts, AIM portfolios and other special cases
Trusts
Trusts holding business or agricultural property have their own allowance rules. For settlements that existed before 30 October 2024, Schedule 12 sets a trust allowance of £2.5 million, divided between qualifying settlements where there is more than one. For pre-commencement settlements, the new rules generally do not apply to relevant property until the first ten-year anniversary on or after 6 April 2026.
Trusts created on or after 30 October 2024 are subject to rules designed to stop the allowance being multiplied by setting up several trusts. Trustees should obtain a fresh analysis of each settlement’s ten-year charge and exit charge position. Our trust lawyers advise trustees on these calculations.
AIM and other unlisted quoted shares
Shares admitted to trading on recognised stock exchanges that are designated as “not listed” now qualify for 50% relief in every case, and do not use the £2.5 million allowance. AIM portfolios built for inheritance tax purposes still reduce the effective rate to 20%, but no longer remove the charge. Investors should review whether the investment risk is still justified by the smaller relief.
Who is most affected by the business property relief changes
The business property relief changes matter most where qualifying property is worth well over £2.5 million per person, or £5 million for a couple. That covers many owner-managed trading companies, family-owned farms and estates, and second- or third-generation businesses where value has built up over decades but cash has not.
Owners whose qualifying property is comfortably within the allowance may see little difference, provided their wills use both spouses’ allowances sensibly. The difficult cases are businesses that are asset-rich but cash-poor. Examples are farms with high land values but modest profits, manufacturers with valuable sites, and companies whose value lies in goodwill that cannot be sold in part. A 20% effective charge on the excess must be paid from somewhere, even with interest-free instalments.
Investors are affected differently. People who bought AIM shares mainly to reduce inheritance tax now get half the relief they expected, while carrying the same investment risk. Trustees of older settlements face new ten-year charge calculations once the first anniversary after April 2026 arrives. Founders weighing an exit should note that a sale converts relievable shares into cash, which gets no relief at all.
Succession planning responses to the business property relief changes
No single structure suits every family. The steps below are the ones we most often work through with owners of family companies and farms.
- Value the qualifying estate. Get a realistic valuation of business and agricultural property, separating what qualifies at 100% from AIM holdings and excepted assets. Many owners underestimate how quickly the £2.5 million allowance is used.
- Coordinate both spouses’ allowances. Because unused allowance is transferable, leaving everything to a spouse no longer wastes the first allowance. However, the surviving spouse’s estate will be larger, so model both deaths together.
- Consider lifetime gifts. Gifts of shares that the donor survives by seven years fall outside the estate. Gifts within seven years draw on the allowance, so timing and sequencing matter. Our guide to the seven-year rule for gifts explains the mechanics.
- Clean up the trading profile. Surplus cash and investment assets inside a trading company can be excepted assets or, in extreme cases, threaten relief altogether. Consider whether to extract them, applying them to the trade, or restructure the group.
- Plan for liquidity. Interest-free instalments over ten years help, but the tax is still payable. Consider life insurance written in trust, dividend policy and buy-back arrangements so that the business is not forced to sell assets.
- Review wills and shareholder documents. Will drafting should direct relievable property efficiently between spouses, children and trusts. Shareholder agreements should use options rather than binding buy-sell obligations, so that relief is not lost.
- Revisit other structures. Family investment companies and employee ownership trusts may suit some families. EOT sales now attract only 50% capital gains tax relief, so the economics have changed.
The allowance is per person, transferable between spouses and refreshed over seven years. A plan that uses both spouses’ allowances and sequences lifetime gifts can shelter much more at 100% than one that waits for the first death.
Illustrative scenario: a family manufacturing company
Illustrative only; generic parties and simplified figures; not a calculation of any real liability. A married couple own all the shares in a manufacturing company valued at £8 million, split equally, and both have owned their shares for many years. The company is clearly trading but holds a material cash reserve. They also own an AIM portfolio worth £1 million.
Under the old rules, the company shares would usually have qualified for 100% relief with no cap. Under the business property relief changes, each spouse’s £4 million holding uses their £2.5 million allowance in full, with 50% relief on the £1.5 million excess. If the first spouse leaves their shares to the survivor, the spouse exemption applies and the unused allowance can be transferred. The survivor would then have up to £5 million of allowance against an £8 million holding, although surplus cash may be treated as excepted assets. The AIM portfolio qualifies for 50% relief only.
The family’s options include gifting some shares to the next generation now and surviving seven years, using trusts within the applicable limits, and reviewing the cash reserve. They might also take out life cover to fund instalments. The right mix depends on ages, health, control and the business’s future plans.
Risks and common mistakes
Relying on a will written for unlimited relief
Many wills of business owners leave shares to children or a discretionary trust on the assumption that business property relief would remove inheritance tax entirely. Since 6 April 2026, the value above the allowance is taxed at an effective 20%, and gifts to non-exempt beneficiaries can create a liability that the rest of the estate must fund. Wills should be reviewed to decide how relievable and non-relievable property is allocated, and whether to use the transferable allowance rather than passing everything directly to the next generation.
Ignoring excepted assets and investment activity
The allowance only helps if the property qualifies in the first place. Trading companies that build up large cash reserves, let surplus property or hold investment portfolios can find that part of their value is treated as excepted assets. If investment activity dominates, relief can be lost entirely. HMRC looks at the whole picture of the business. Review the balance sheet periodically and document the business purpose of retained cash, such as planned capital expenditure.
Binding buy-sell clauses in shareholder agreements
A shareholder agreement that obliges surviving shareholders to buy, and the estate to sell, can amount to a binding contract for sale and deny relief. Cross-option arrangements are generally used instead. This is not new, but it matters more now that every pound of relief is scarcer. Check shareholder and partnership agreements alongside wills.
Overlooking the pensions change from April 2027
From 6 April 2027, unused pension funds will be included in the estate for inheritance tax. For many business owners, the pension pot plus business value above the allowance will create a much larger liability than expected. Estate modelling should include the pension, and nominations and lifetime strategy should be reviewed. See our article on pensions and inheritance tax.
Cross-border angle: overseas owners and foreign assets
Business property relief can apply to foreign businesses as well as UK ones. Whether a foreign asset is within UK inheritance tax at all depends on the owner’s long-term residence status under the new rules explained in our guide to non-dom tax changes. Budget 2025 also confirmed that UK agricultural property held through offshore structures will be treated equally from 6 April 2026, closing a route used by some overseas investors.
Families with businesses or land in Bangladesh face two inheritance regimes. A UK estate plan that relies on business property relief must also work under Bangladeshi succession law, and the relief may not cover every asset in the same way. Our guide to UK inheritance tax on Bangladesh assets sets out the main interactions.
What to do next: checklist for owners and trustees
- Obtain a current valuation of all business, agricultural and AIM holdings.
- Confirm that each holding meets the two-year ownership and trading conditions.
- Model inheritance tax on both spouses’ deaths under the business property relief changes, including pensions from April 2027.
- Review wills, letters of wishes and shareholder or partnership agreements.
- Consider a programme of lifetime gifts, recorded carefully, with life cover for the seven-year period.
- For trusts, diary the first ten-year anniversary on or after 6 April 2026 and model the charge.
- Check the Budget 2025 OOTLAR and the Finance Act 2026 for transitional rules that may apply to past gifts.
TRW & Co’s London office is authorised and regulated by the Solicitors Regulation Authority. Our wills and estate planning and tax lawyers work together on succession planning for family businesses. To discuss your plan, contact our London team at info@trw.co or +880 1779 127165.
Frequently asked questions
01What is the new business property relief limit?
From 6 April 2026, each individual has a £2.5 million allowance for the combined value of property qualifying for 100% business property relief or agricultural property relief. Qualifying property above the allowance receives 50% relief, giving an effective inheritance tax rate of 20% on the excess. The allowance was originally announced at £1 million in October 2024 and increased to £2.5 million before the Finance Act 2026 was passed.
02Can the £2.5 million allowance be transferred to a spouse?
Yes. Any unused part of the allowance on the death of a spouse or civil partner can be transferred to the survivor on a claim, so a couple can pass on up to £5 million of qualifying property with full relief. Where the first death occurred before 6 April 2026, the legislation assumes the whole allowance is available for transfer. The transferable allowance changes how wills should allocate business and agricultural assets between spouses and the next generation.
03Do AIM shares still qualify for business property relief?
Yes, but only at 50%. From 6 April 2026, shares admitted to trading on recognised stock exchanges designated as “not listed”, which includes AIM, receive 50% relief in all circumstances. They do not use the £2.5 million allowance. An AIM portfolio held for two years can still reduce the effective inheritance tax rate on those shares to 20%, but it no longer removes the charge altogether.
04Do the changes affect gifts made before April 2026?
They can. Where a gift of business or agricultural property was made after 29 October 2024 and before 6 April 2026, and the donor dies on or after 6 April 2026 within seven years of the gift, the new rules generally apply in calculating tax on that gift. Gifts the donor survives by seven years remain outside inheritance tax. Anyone who made significant gifts after the October 2024 Budget should model the position.
05How can inheritance tax on a family business be paid?
From 6 April 2026, inheritance tax on any property eligible for agricultural or business property relief can be paid in ten equal annual instalments, interest-free. This eases cash flow but does not reduce the tax. Families often combine instalments with life insurance written in trust, dividend planning or share buy-back arrangements so that the business is not forced to sell assets or borrow heavily to meet the liability.
06Are trusts affected by the business property relief changes?
Yes. Trusts holding relievable property are subject to allowance rules of their own. For settlements that existed before 30 October 2024, the Finance Act 2026 sets a £2.5 million trust allowance, divided where there are several qualifying settlements. The new rules generally reach that property from the first ten-year anniversary on or after 6 April 2026. Trusts created from 30 October 2024 are subject to rules preventing the allowance from being multiplied.
Sources and official materials
- Changes to agricultural property relief and business property relief — Government summary of the £2.5 million allowance, AIM, instalments and trusts
- Finance Act 2026, Schedule 12 — Statutory text of the reform, allowance and indexation
- Inheritance Tax Act 1984 — Underlying business and agricultural property relief rules
- Budget 2025: Overview of tax legislation and rates — Threshold freeze to 2031 and transfer of unused allowance
- Finance Act 2026 — Full Act, including transitional provisions
General information only, current as at 21 October 2026. It is not legal advice and does not create a solicitor–client relationship. It reflects the law of England and Wales unless stated otherwise; Scotland and Northern Ireland have separate legal systems, and the law changes frequently. Check current official sources and take advice on the facts of your matter.