Among the draft legislation published for Finance Bill 2025-26 this week is confirmation of major changes to two areas of inheritance tax (IHT): business property relief (BPR) and agricultural property relief (APR).
If you’re a business owner or agricultural landowner, the new restrictions to APR and BPR will affect you from 6 April 2026. You should expect an impact on how you pass your businesses and agricultural land to younger family members, and how you settle shares or agricultural land into trust.
Read on for key details of the APR and BPR changes, what you should be thinking about and how our IHT, trusts and estates specialists can help you to prepare.
What are BPR and APR?
BPR provides relief – for some assets at 100% – from IHT on ‘relevant business property’. In defining relevant business property, the IHT legislation does not explicitly refer to trading businesses but, as a rule of thumb, businesses actively trading, which do not carry out material investment activities (e.g. property investment) should qualify once they have been held for two years.
Uncapped relief, at 100%, has been available on:
- Businesses or interests in businesses (such as partnership interests)
- Unquoted shares (including AIM shares)
- Unquoted securities conferring control
This means that business owners or individuals who hold shares in unquoted trading companies do not generally pay IHT on death. This has enabled businesses to pass from one generation to the next, free of IHT.
APR provides relief from IHT for the agricultural value of agricultural property. Broadly, relief is only available where either the owner occupies the land for the two years to death, or it is let to a tenant farmer for seven years to the date of death. The rate of relief has been either 100% or 50% depending on the terms of any tenancy agreement.
How are BPR and APR changing in 2026?
The changes were first announced in Autumn Budget 2024. Despite much lobbying from farmers, business owners and industry groups to soften these proposals, the changes in the latest draft legislation are largely as expected.
Although a consultation on the draft legislation is running until 15 September 2025, we expect the draft legislation to be passed. This means that from 6 April 2026:
- A £1m cap will be applied to the combined value of property qualifying for APR and BPR at 100% (i.e. the first £1m of the total value of assets qualifying for 100% APR or 100% BPR or both). Above this, relief will be restricted to 50% such that IHT would be charged at an effective rate of 20% on any value in excess of £1m of BPR and APR qualifying assets on death
- BPR on shares listed on unrecognised exchanges – notably AIM – will be reduced from 100% to 50% (i.e. no 100% exemption at all)
Key details about the changes
- The £1m allowance renews every seven years (in the same way as the IHT nil rate band)
- The £1m allowance will be increased in line with the CPI from 2029/30
- The £1m allowance is not transferrable between spouses
- Trusts will also have £1m allowance, which will relieve 10 year charges and exit charges on qualifying agricultural and business property. From 30 October 2024, the trust allowance is apportioned between all trusts settled by the same settlor (if there are more than one)
- IHT payable in respect of property qualifying for APR or BPR will now qualify for payment by instalments such that, on election, IHT can be paid over 10 years, free of interest
What do the changes mean in practice?
If you own a business or agricultural land:
- You won’t be able to rely on your business and agricultural land passing to your children, grandchildren etc free of IHT on death
- You won’t be able to settle shares or agricultural land into trust free of IHT (above the £1m cap)
Our views on the changes
For business owners and entrepreneurs, who represent the engine of the economy, the changes to BPR are another blow following the reduction to both the quantum and then rate of Business Asset Disposal Relief (formerly called Entrepreneurs’ Relief) combined with an increase in headline rates of capital gains tax (CGT).
It is interesting to compare the current government’s position in its pursuit of growing the economy with the coalition government’s choices in the 2011 Budget, when the rate of Entrepreneurs’ Relief was doubled to encourage serial entrepreneurship and make the UK a more attractive location for entrepreneurs.
What should business owners and owners of agricultural land be thinking about now?
Settling trusts before April 2026
Until the BPR and APR changes take effect on 6 April 2026, business owners may settle assets of any value that qualify for 100% BPR into trust free of IHT. The same is also true of property which qualifies for APR at 100%.
As things stand, this opportunity will be lost from 6 April 2026, when it will no longer be possible to put material value into a trust IHT-free. This will materially impact the ability of business owners and landowners to use trusts to transfer value out of their estate in a protected way.
There may be other tax implications (e.g. CGT, stamp duty and/or SDLT) that arise from settling assets into trust which need to be considered on a case-by-case basis. We recommend seeking professional tax advice to ensure that all tax implications are fully addressed.
Transfers between spouses
Because the £1m allowance (shared between APR and BPR) is not transferrable between spouses, you and your spouse will now have to consider how assets are held to maximise the relief.
Keep in mind that for BPR, the two-year holding period is for each spouse and is not shared (i.e. the ownership period of one spouse does not contribute to the other spouse’s holding period).
Lifetime gifts of shares
Unfettered gifts made to individuals (e.g. children) during an individual’s lifetime will be free from IHT provided the transferor survives for seven years. Hence it may make sense to make lifetime gifts now, particularly where children work in a business.
Be aware that capital gains tax (CGT) charges may also arise on lifetime gifts of shares, so we recommend seeking professional tax advice.
An added benefit to gifting shares is that the value of the shares retained may be reduced by more than the value of the shares transferred. This is because a non-controlling shareholding in an unquoted trading company will benefit from minority discounts – essentially the value of 100% of a company’s shares in one person’s hands will be worth materially more than the combined value of, say, four 25% shareholdings held by four individuals. Transferring shares to children can therefore reduce the inherent value of the shares retained by the transferor.
Impact on wills
The availability of BPR and APR has always been relevant for business owners and landowners when considering how to structure their wills. We recommend reviewing your will to consider the impact of the changes, especially if 100% BPR and/or APR was being relied upon to pass assets to other family members.
Passing assets to spouses generally remains exempt from IHT and benefits from an uplift in the base cost of assets for CGT purposes. However, as noted, to maximise the £1m cap, you should carefully consider the ownership of assets and how they are transferred via wills.
Life insurance
Life insurance has always been an important part of the overall picture when protecting future generations from IHT charges. We expect this to become increasingly important now that business assets are within the scope of IHT.
How BKL can help
Our specialists in tax, IHT, trusts and estates help entrepreneurs, families and trustees to understand UK tax complexities and structure their estates tax-efficiently. This covers all points in the business lifecycle, and all aspects of your business ownership and wealth.
We can explain how the BPR and APR changes will impact your unique situation, guide you through the factors that may affect your tax liability, and advise you on preserving and passing on as much of your wealth as possible. This includes helping you and your spouse to write and update your wills.
For a chat about how we can help you with IHT and estate planning, get in touch with Susie Mullin or Ryan Bevan, or send us an enquiry.
