B(e) PR(epared) – business owners should act now to maximise inheritance tax relief

It has been over a year since significant inheritance tax (‘IHT’) changes were announced in the 30 October 2024 Budget, and eight months since the government’s consultation on Business Relief (‘BR’), formerly known as Business Property Relief ended.  Similar proposals apply to Agricultural Relief, but this article focusses on BR, which is often  more valuable and relevant to all farms, given that they are, of course, businesses too.

Although the government published draft legislation in July 2025, there were further revisions to the proposed changes in the 26 November 2025 Budget and most recently by way of a press release on 23 December 2025.  There is now clearer guidance as to what is ahead, however, with limited time before the proposed changes take effect on 6 April 2026, business owners, at any stage of life, have a valuable window to act now to bank the maximum amount of relief using trusts.

Current rules – until 5 April 2026

Under current legislation, BR reduces the value of qualifying business assets (e.g. shares in an unlisted company) for IHT purposes by 100% or 50%, depending on the asset.  Relief applies to lifetime or death transfers, provided the following conditions are met:

1. The asset has been held for at least two years;
2. The business is commercially run and does not consist wholly or mainly (i.e. more than 50%) of:
   • Dealing in securities, stocks, or shares;
   • Dealing in land or buildings; or
   • Making or holding investments;
3. The business is not in the process being liquidated, wound up, or subject to a binding contract for sale.

‘Trust’ the process

Lifetime transfers of assets into a trust normally trigger an immediate 20% entry charge on the value exceeding £325,000 – unless 100% BR applies, in which case no IHT is due.

Because the value of such a qualifying asset is effectively reduced to zero for IHT purposes, this mechanism has long been used in estate planning to transfer significant value into a trust without an IHTcharge.  It also allows the original owner to  retain oversight and control of the business via trustees – particularly useful when beneficiaries are not yet ready (or mature enough) to manage the business themselves.

New rules – from 6 April 2026

The government proposes that 100% BR will no longer be available on an unlimited value of qualifying business assets. While the initial proposal set the cap for 100% BR at £1 million per person, the revised allowance announced on 23 December increases this to £2.5 million per person. Any value above this threshold will attract 50% relief, leaving the remaining balance partially exposed to IHT.

Additionally at the 26 November 2025 budget, the government partially amended its original proposals and announced that any unused BR allowance (now £2.5 million) would become transferable between spouses and civil partners on death. This is in line with the current transferability rules around the £325,000 nil-rate band (‘NRB’) and means that without having to transfer assets between them during lifetime, couples will be able to pass up to £6.3 million of qualifying business assets on death, free of IHT as:

• the first £2.5 million for each spouse is fully exempt with 100% BR; and
• a further £650,000 for each spouse is reduced by 50% (as 50% BR will apply), leaving £325,000, which falls within each spouse’s NRB and so is also free of IHT.

From 6 April 2026, transfers of qualifying business assets into trust are to be treated as follows:

• The first £2.5 million will receive 100% BR – meaning no IHT on entry, no additional charge if the settlor dies within seven years (assuming BR still applies), and no ongoing charges.
• Any value above £2.5 million will only receive 50% BR. This would lead to:
  • an immediate effective 10% IHT charge; and
  • a potential further 10% if the settlor dies within seven years and BR still applies;
  • The position for ongoing charges for trusts, and whether trusts will also benefit from the £2.5 million allowance on each 10 year anniversary and exit, is not clear from the recent December 2025 announcement and we await the updated legislation to confirm the treatment of ongoing charges.

This marks a major shift for business owners who had planned to use trusts for succession and tax planning – particularly those business owners preparing for a sale and seeking to mitigate their IHT exposure.

Window of opportunity

With the proposed cap approaching, business owners have a limited window to act.  Now is the time to consider transferring an unlimited value of BR-qualifying assets into trust before 6 April 2026 while full relief remains available.  Doing so can help avoid the 10% entry charge (or up to 20% if the business is likely to be sold and the sale proceeds are intended to remain in trust) on amounts over £2.5 million once the new rules take effect.

Key planning points include:

• Ensuring the qualifying asset has been held for at least two years to meet the BR requirements.
• Structuring the trust appropriately, typically as a discretionary trust, to retain flexibility for future decisions.

While future IHT charges (at 10-year anniversaries and on exits) will fall under the new regime, the overall IHT liability of the trust is still expected to be significantly lower if the trust is created before 6 April 2026.

Beware of the ‘Excepted Assets’ trap

Even under current rules, not all business assets qualify for full relief.  Assets that are not used for the purposes of the business may be treated as ‘excepted assets’ and will not benefit from BR.

Common examples include:

• Surplus cash or investments held within the business but not required for its trade; and
• Personal assets owned by the company but not used in the course of its business.

It is therefore essential to review the makeup and activities of the business before making any transfer into trust.

Summary

Although draft legislation was published in Summer 2025, continuing pressure on the Chancellor and the government has resulted in a significant revision of key elements of the proposed changes to BR:

• the originally proposed £1 million allowance for 100% BR has been increased to £2.5 million per individual; and
• importantly, the BR allowance is now transferable between spouses and civil partners. This means that any unused allowance can pass to the surviving spouse, effectively enabling the use of up to a £5 million between them, even if the first death occurs before 6 April 2026.

All other BR proposals remain largely intact so whether you are preparing to sell your business, planning for retirement, or thinking ahead to support the next generation, the introduction of the BR cap represents a fundamental change in estate planning.

Business owners should now:

• Review their current holdings and estate plans;
• Identify BR-qualifying assets; and
• Consider transferring BR-qualifying assets (of unlimited value) into trust before 6 April 2026 to secure full relief under current rules.

This is a time-sensitive opportunity. The rules are changing, and tailored professional advice is essential to maximise relief and avoid any pitfalls.

How we can help

Our private wealth and corporate teams have the technical expertise and experience to help you navigate these changes and implement suitable trust and corporate structures. Please get in touch to explore your options.