Inheritance Tax & Business Property Relief: What UK Business Owners Must Act On Now

If you own a business, farm, or significant investment portfolio, the rules around how those assets are taxed when you pass them on have changed — and the impact could be substantial. April 2026 brought the most significant reform to Inheritance Tax (IHT) reliefs in decades, with further changes on the horizon in 2027. At Everstead, we are already helping clients review their positions and plan ahead. This blog explains what has changed, who is affected, and what you should be doing right now.

What Is Business Property Relief — and Why Did It Matter So Much?

Business Property Relief (BPR) and Agricultural Property Relief (APR) have long been among the most valuable reliefs in the UK tax system. They allowed qualifying business and agricultural assets to be passed on — either during your lifetime or on death — with up to 100% relief from Inheritance Tax. In practice, this meant a family business worth several million pounds could be handed to the next generation entirely free of the 40% IHT charge that would otherwise apply. For many business owners and family farms, this was not just a planning tool — it was the cornerstone of their succession strategy.

What Changed From 6 April 2026?

The government introduced a cap on the amount of qualifying business and agricultural property that can attract 100% relief. Here is how the new rules work:

• The first £2.5 million of combined qualifying BPR and APR assets per individual still receives 100% relief — meaning no IHT on that portion.
• Assets above £2.5 million now only receive 50% relief, resulting in an effective IHT rate of 20% on the excess.
• Married couples and civil partners can combine their allowances. If one spouse dies and has unused allowance, it can be transferred to the survivor — giving couples up to £5 million of combined relief.
• AIM-listed shares, previously eligible for 100% BPR, are now subject to only 50% relief regardless of value, and do not benefit from the new £2.5 million allowance.

Example: A business owner with qualifying assets worth £4 million would previously have paid no IHT on those assets. Under the new rules, the first £2.5 million is still exempt, but the remaining £1.5 million receives only 50% relief — leaving £750,000 subject to IHT at 40%, a tax bill of £300,000.

What Is Changing in April 2027?

A second wave of change arrives in April 2027, and this one will affect a much wider group of people — including those who may never have thought of themselves as part of the IHT conversation.

From 6 April 2027, most unused pension funds will be included in an individual’s estate for IHT purposes. This is a fundamental shift. Pensions have historically been one of the most efficient ways to pass wealth to the next generation, sitting outside the taxable estate entirely. That exemption is being removed. If you have built up a significant defined contribution pension pot that you do not intend to draw down fully in retirement, your estate — and your beneficiaries — could face a significant IHT liability that did not previously exist.

Who Is Most Affected?

These changes will have the greatest impact on:

• Family business owners whose company or partnership is worth more than £2.5 million and who were relying on BPR to pass the business on without an IHT bill.
• Farmers and landowners with agricultural property that previously qualified for unlimited APR relief.
• Directors and business owners who have built up large pension pots as part of their retirement and succession planning strategy — particularly those with SIPPs or SSASs holding commercial property.
• Individuals with AIM share portfolios structured around the expectation of 100% BPR.
• Anyone whose estate, when pensions are added from 2027, will exceed the nil-rate band of £325,000 plus any unused allowances.

It is worth noting that this is not exclusively a problem for the ultra-wealthy. Many business owners who have grown their companies steadily over 20 or 30 years will find that a combination of business value and pension wealth now creates an IHT exposure they had not anticipated.

What Should You Be Doing Right Now?

The good news is that there is still time to plan — but that window will not stay open indefinitely. Here is what we recommend:

1. Review your current estate position

Start by understanding the full picture: business assets, property, investments, pensions, and any existing trusts or gifts. Many clients are surprised by the total once everything is brought together. This review should be done with both your accountant and a qualified financial planner.

2. Model the impact of the new thresholds

If your business or agricultural assets exceed £2.5 million, calculate the likely IHT exposure under the new rules. This will help you understand whether restructuring, lifetime gifting, or insurance arrangements are appropriate.

3. Reconsider your pension strategy

If you were planning to leave your pension largely untouched as a tax-efficient inheritance vehicle, that strategy needs revisiting ahead of April 2027. Depending on your circumstances, it may now be more efficient to draw down your pension earlier and redirect funds into other structures.

4. Consider lifetime gifting

Transferring qualifying business assets during your lifetime can move future growth outside your estate and make use of some or all of your £2.5 million allowance. Timing and structure matter — this should be done carefully with professional advice.

5. Review any AIM investments held for IHT purposes

If you hold AIM shares specifically because of their previous 100% BPR status, the calculus has changed. Consider modelling alternative structures and whether the remaining 50% relief still justifies the investment profile.

If you are unsure whether these changes affect you, the answer is probably: they do. Almost anyone who owns a business, holds a pension, or has built up property wealth should review their position before April 2027.

How Everstead Can Help

At Everstead Business and Accountancy Services, we work with business owners, sole traders, and individuals to make sure their tax affairs are structured as efficiently as possible — not just for today, but for the future. We can help you understand your current IHT exposure, model the impact of the new rules on your estate, and work alongside your financial planner to develop a practical, compliant strategy.

This is not a topic to leave until later. The earlier you review your position, the more options you have available.