Set to come into effect in April 2026, changes to Inheritance Tax (IHT) are set to be wide-ranging.
Announced in last year’s Autumn Budget, one of the major changes impacts Business Property Relief (BPR).
Concern is growing that there may simply not be enough time for business owners to make necessary changes, as many are still unaware that they are going to be affected.
What is changing with Business Property Relief?
Where once BPR was quite generous, there will soon be a cap on the availability of 100 per cent of relief to the first £1 million.
The relief falls to 50 per cent for any assets that qualify above that threshold, meaning larger businesses will no longer benefit as much from the exemption.
It may come as a surprise to some business owners, given that a lot of attention has been given to the impact of IHT changes for farmers.
Agricultural Property Relief (APR) is also set to change, so those who work in agriculture and these rate changes will be equally significant in pulling more estates into scope for IHT.
However, the lack of awareness among business owners has caused some concern in a recent House of Lords committee.
It was argued that the revenue generated by the changes to BPR may not be significant enough to justify the additional administrative challenges that the changes would create.
There was speculation that a delay to the implementation of the BPR changes could provide businesses a reprieve needed to prepare accordingly.
Given that the Chancellor is keen to fill the economic black hole in her upcoming Autumn Budget, it is unlikely that any such delays will manifest.
How should businesses prepare for changes to Business Property Relief?
Understanding the value of your estate, including the value of your business, is imperative if you wish to know how changes to IHT could impact you.
While farmers tend to be constrained in terms of offloading value as much of the value of their estate comes from essential assets rather than ready cash, business owners may be able to restructure more effectively.
It could be time to utilise gifting as a means of reducing your overall IHT bill or restructuring your business so that you hold less of the value.
To do this, you need to know the value of your business and the increased need for valuations might negatively impact HM Revenue and Customs (HMRC).
There was concern in the House of Lords committee that HMRC might become overwhelmed by business valuations, so it is best to act swiftly to avoid having to contend with other concerned business owners.
While it might be necessary to restructure your business, the changes to BPR should not disincentivise you from working to grow your business.
There is still a way to be successful even as IHT is expanded to cover more estates.
Our expert team of accountants can help you understand the structure of your estate and give recommendations on what can be done to minimise your IHT bill.
Ultimately, there is still time to make adjustments in preparation for the BPR changes, but action needs to be taken sooner rather than later.
