Chancellor Rachel Reeves announced significant Inheritance Tax (IHT) reforms in the 2024 Autumn Budget, which included restricting the availability of the Business Property Relief (BPR)
The BPR is a valuable resource to help family-owned businesses reduce their tax liabilities, but this will become much more difficult when the BPR restrictions take effect in April 2026.
2026 will see the introduction of a new BPR cap
Under current laws, BPR allows 100 per cent relief on assets which meet the criteria and allow you to pass them on without any IHT concerns, but this will change from April next year.
The introduction of the cap means only the first £1 million of qualifying assets will receive 100 per cent BPR.
If the value of the assets exceeds the cap, a 50 per cent relief will be in place and IHT will apply at 40 per cent.
The cap applies to individuals only, meaning it cannot be transferred between your spouse, as each trust created will have its own cap limit in place.
It is also important to note that multiple trusts cannot be created to multiply the allowance given.
Why is the introduction of the cap a concern for family-run businesses?
The cap will be of great concern to family-run businesses in the UK because many will have exceeded the £1 million threshold through property, assets and profits.
The BPR has been valuable to family-run businesses, allowing wealth to be passed down through the generations without the risk of receiving an IHT bill.
However, from April 2026, this will change and the new regulations in place could put families in a difficult position where they will be required to pay a large IHT bill should they not accommodate for the BPR cap.
The cap could affect more than five million family-run businesses operating within the private sector, which is why it is so important to understand the new regulations and implement changes to reduce your liability.
What proactive measures can I put in place ahead of April 2026?
Whether your succession plans are immediate or several years away, it is important that you put an effective plan in place to try and reduce your IHT liabilities.
You should analyse the overall ownership structure of your business and see if there is a possibility of either distributing shares to your family or keeping those shares within a trust.
Doing this before the new BPR regulations take effect may allow you to transfer more than the £1 million allowance, but you should speak with finance professionals who can advise and support, especially as there may be tax implications.
In addition to this, you can conduct thorough reviews of your balance sheet to distinguish which assets qualify for the relief and remove assets which do not meet the criteria and you can discuss liquidity plans, as this will help your beneficiaries cover any tax bills without having to sell or trade assets.
