Business Relief (BR) is a valuable Inheritance Tax (IHT) relief that reduces the tax payable on qualifying business assets when passed on at death. Under the current rules, BR could shelter up to 100% of the value of eligible business assets from the estate for IHT purposes. Similar rules apply to Agricultural Property Relief (APR) for qualifying farmland and farm buildings.
These reliefs have been crucial in the succession planning for family businesses and farms, passing from one generation to the next without triggering significant IHT. Another advantage has been the Capital Gains Tax (CGT) uplift on death, which resets the base cost of a business or farm to its current value for the next generation, with no immediate tax liability; there have been no changes to this benefit, so far (!).
In Autumn Budget 2024; the Labour government made significant reforms to BR and APR aimed at increasing IHT revenues. At that time, the key announcements were:
Following industry feedback, the Autumn Budget 2025 introduced an important concession to allow unused relief allowances to be transferable to a surviving spouse or civil partner, even where the first death occurs before 6 April 2026. A further amendment, announced in late December 2025 increased the relief cap substantially, from £1 million to £2.5 million per individual. According to HMRC sources; about 85% of estates claiming APR/BR will now not face additional IHT under the new cap.
Therefore, the rules that are due to come in in April 2026 are now:
It is important to remember that these reliefs are in addition to standard nil rate bands (currently of £325,000 per individual). This means that a married couple or civil partners could potentially pass on up to £5.65 million free of Inheritance Tax.
Planning Considerations
Careful planning is now more important than ever as this cap on relief could significantly alter the long-term financial and estate planning strategies for business owners, farmers, and their families. While the increased threshold provides welcome headroom for most, there are some key planning considerations.
First and foremost, seek advice; these are intricate rules that require professional advice to avoid costly errors.
The starting point for most is reviewing their estate exposure to IHT, which for business and agricultural assets, it can be a complex process to get to a formal valuation. It is also wise to review how an IHT liability would be met; farms are often asset-rich but cash-poor and so even an IHT instalment payment could put cash flow under pressure. To limit disruption, there may be need for a life assurance policy (written in trust) to fund the IHT liabilities.
The ability to transfer unused relief allowances between spouses or civil partners creates new planning opportunities as couples may now effectively shelter up to £5 million of qualifying assets at 100% relief. It is, however, still important to review how these assets are structured and distributed on death to ensure that both allowances can be fully utilised.
One area we have been discussing a lot with clients is lifetime gifting, and in particular, Trusts. A direct gift to family members is still a simple option but requires the donor to survive seven years if the gift is to fall outside of their estate for IHT. For many families, trusts play a vital role in their strategy; this allows them to retain control whilst protecting the assets from IHT. Once again, assuming the donor lives seven years from the date of the gift into trust, this will fall outside of their estate for IHT.
From April 2026, the 100% relief for individuals to make direct gifts or gifts into trust of these assets will be capped at £2.5m, but this cap will refresh every seven years in the same way the standard nil rate bands do. If the gifts within a seven-year period are in excess of the relief cap of £2.5m, then a lifetime IHT charge would apply to the excess.
There is therefore a short (getting very short) window up to April 2026 where these assets can be gifted into a trust without a limit and therefore no lifetime IHT charge. It is however worth noting that should the donor die post 5 April 2026 and before 7 years of the gift into trust, the value over the new BR allowance will be taxable with 50% IHT relief on death.
This area is increasingly complex so requires careful structuring and, in some cases, ongoing advice. Trustees must pay a charge on every 10-year anniversary of the date when the trust was set up on the value above the available allowance.
In Brief
While the increase in the relief cap to £2.5 million softens the impact of the reforms, it does not eliminate the need for proactive financial planning. The move away from unlimited 100% relief represents a structural change to the UK Inheritance Tax system. Business owners and farming families who engage early with these changes will be best placed to protect both their wealth and the long-term sustainability of their businesses.
It is rare that you could get best advice on these matters in isolation; a holistic approach, integrating the new relief rules into your wider financial planning, is essential. This will help ensure that tax efficiency does not come at the expense of financial security, flexibility, or commercial viability.
