Jennie Brown, tax partner at Streets, provides an update on the inheritance tax changes recently confirmed by HMRC.
Big changes are coming, and they could hit family-owned trading and farming businesses hard.
HMRC has now confirmed that major reforms to Inheritance Tax (IHT) reliefs for business and agricultural property will take effect from 6 April 2026. These changes represent a significant loss of tax relief for many business owners and the financial consequences could be substantial.
What’s changing?
The government’s Autumn 2024 Budget set the wheels in motion to scale back both Business Property Relief (BPR) and Agricultural Property Relief (APR):
- The existing 100% rates of relief will continue for the first £1 million of combined agricultural and business property. The rate of relief will be 50% thereafter.
- Gifts to trusts made on or after 6 April 2026 will be subject to an individual’s £1 million allowance every 7 years.
- A £1 million allowance will apply to the combined value of qualifying APR/BPR property held by trustees of discretionary trusts. This will be taken into account when calculating each future tax charges on 10-year anniversary dates and when property leaves the trust. There are various transitional rules that will need to be considered.
HMRC’s consultation response – but no real U-turn
HMRC launched a technical consultation on the proposed changes in February 2025. The outcome was published on 21 July 2025. Disappointingly, very few changes are proposed. For example, 100% BPR/APR relief is not to be transferable between spouses or civil partners. Also, some owners of BPR and APR will now be ‘caught out’. This will be where there is no realistic possibility of them being able to make gifts over time of BPR/APR property to maximise the amount of £1m allowances available within the family. One notable change was that the government accepts that the proposed valuation rules in relation to linked holdings of shares in family trusts owning APR and BPR assets will not be introduced because of the complexity this would involve.
Time is ticking – sooner than you think
The deadline for the commencement of the new rules is 6 April 2026. Special rules will apply during a transitional period where gifts take place on or after 30 October 2024 and before 6 April 2026. This will enable many owners of business or farming interests to restructure their businesses in a tax efficient way for future generations.
A wake-up call for succession planning
Some owners of APR/BPR property have not realised the full implications of these changes. In the past, there has been no need to consider long term business succession planning. This is because 100% BPR/APR meant that limited IHT would be due on the death of the owner. In addition, there would be a tax free increase in the capital gains tax (CGT) base cost of the assets to their value at the time of death. Now, many family businesses will need to identify a long term strategy to maximise the availability of £1m IHT 100% exemptions.
Laying the groundwork
Many owners of BPR/APR businesses do not know how much IHT could be payable on their deaths under the new rules, or the real value of their businesses in tax terms. Establishing a clear baseline is the essential first step. From there, the priority is to develop a long-term strategy to maximise the available reliefs and minimise future tax exposure.
Reassess your business — do you still qualify for reliefs?
Some business owners may have diversified over time, and now need to reassess whether their current structure still qualifies for BPR or APR. In addition, a common issue is that successful family trading businesses often hold non-trade related assets, such as surplus cash, investment properties, or other passive holdings.
Both elements could compromise eligibility for BPR and limit the availability of holdover relief where gifts are made to individuals. Failure to address these issues can also result in an unexpected 20% IHT charge if assets are settled into trust and no relief applies.
Optimising relief through trusts
For many family businesses holding business or farming interests through family trusts is an important option to consider. The £1 million allowance will apply to any gifts of APR/BPR property made during the transitional period which subsequently come back into charge as a result of the death of the settlor after 5 April 2026 and within 7 years of having made the gift. Insurance here is something to consider, but there is scope to make meaningful gifts prior to the expiry of the transition period.
Wills and the risk of wasting relief
The failure to make the £1m BPR/APR allowance transferable to surviving spouses and registered civil partners was a major blow. Wills need to be reviewed so that they do not leave qualifying assets to a surviving spouse or registered civil partner, this could have the effect of wasting a £1m APR/BPR allowance. This means that thought should be given to leaving the shares to a suitably drafted will trust to preserve the availability of the relief.
Life insurance: a renewed role in IHT planning
Life insurance has not traditionally been a priority for many owners of family trading or farming businesses, as unlimited 100% APR or BPR relief often removed the need for it. However, with those reliefs now capped, it is essential to revisit the business’s life assurance needs.
A carefully structured life policy can provide liquidity to meet future IHT liabilities, but it must be written in trust and held outside the estate to ensure the proceeds do not form part of the taxable estate on death.
Planning now for a changed future
The new rules will have a significant and lasting impact on family trading and farming businesses. Reliefs that were once unlimited are now capped, and longstanding planning approaches need to be revisited.
Now is the time for business owners to get their affairs in order, not only to adapt to the incoming changes, but to ensure they are making full use of the remaining planning opportunities while they’re still available.
At Streets, we’re already helping clients review their structures, model future IHT exposure, and implement strategies that preserve relief and protect family wealth. From trust and will planning to business restructuring, we’re here to help you make the most of the time that remains.
See this column in the August issue of East Midlands Business Link Magazine here.
