From April 2026, the UK’s business relief regime, a key part of inheritance tax (IHT) planning for business owners, will see its most significant changes in decades.

Amal Shah, Tax Partner, Gerald Edelman

The reforms will change how business assets are transferred between generations, narrow the scope of relief available, and create new complexities for individuals with substantial business or agricultural interests.

For decades, the UK’s inheritance tax regime has supported family businesses, allowing them to be built over time and passed to generation.

Business Relief has been central to that support. It has enabled many trading businesses to transfer free from inheritance tax, preserving both capital and continuity of the family business.

However, recent developments suggest a subtle but meaningful shift in how business relief is being interpreted and applied. While not widely publicised, the implications for family-owned businesses are significant.

Before looking at the upcoming reforms, it is helpful to recap what Business relief is and why it plays such a central role in estate planning.

What is business relief and how does it work?

Business relief (formerly Business Property Relief, or BPR) is a UK inheritance tax relief designed to reduce, and in many cases eliminate, IHT on qualifying business assets. The policy was originally introduced to ensure that family businesses could be passed on without forcing the next generation to sell assets simply to pay an IHT bill. Under the current rules, Business relief can apply to:

• Shares in unlisted trading companies.
• Shares listed on the Alternative Investment Market (AIM).
• Sole-trader businesses and partnership interests.

To qualify, the following key conditions apply:

• The relevant asset must generally be owned for at least two years before it is passed on, whether during lifetime or on death.
• The business must be wholly or mainly trading, not primarily engaged in investment activities. For example, businesses that mainly hold investments, deal in securities, or buy and sell land or property generally do not qualify.

What is changing in April 2026?

The government confirmed major reforms to business relief in the 2024 Autumn Statement, followed by updates announced on 23 December 2025. These changes form part of a wider reshaping of both business relief and agricultural relief.

The new regime, effective from 6 April 2026, introduces several significant adjustments:

• A combined relief allowance of £2.5 million per individual, covering both business relief and agricultural relief. The same cap also applies across all trusts created by the same settlor.
• 50% relief will apply to qualifying assets above this cap, resulting in an effective 20% IHT charge on the excess (based on the 40% IHT rate).
• The new £2.5 million allowance is transferable between spouses and civil partners, enabling couples to protect up to £5 million of qualifying assets.
• AIM-listed shares will no longer receive 100% relief, only 50% relief will be available going forward.
• Trust planning becomes more restricted, multiple trusts created after 6 April 2026 will share the same £2.5 million cap.
• Older trusts will eventually fall into the regime, even trusts set up before 30 October 2024 will be subject to the new cap after their next 10 year anniversary, reducing the effectiveness of historic planning.

These reforms are aimed at concentrating relief on smaller, family-run businesses and farms. However, they also introduce increased tax exposure and more complex planning considerations for larger estates, high-growth enterprises, and individuals with diverse business interests.

Further considerations restricting relief

HMRC is placing greater emphasis on whether a business is genuinely “trading” in substance, not just in structure. The long-standing test, whether a business is “wholly or mainly” trading, is now being applied more rigorously.

This creates risk for family businesses, which often evolve over time to include a mix of trading and investment activity.

Property-heavy groups, surplus cash reserves, or income streams that could be viewed as passive may weaken a claim, or in some cases, prevent relief altogether.

As a result, businesses that may previously have qualified in full could now find relief reduced or denied.

Implications for business owners

Where business relief was once seen as quite predictable, it is increasingly becoming a matter of judgement.

In practical terms, this leads to two changes:

• First, greater scrutiny. HMRC is frequently reviewing claims in detail, focusing on how the business actually operates: how income is generated, how assets are used, and where management time is spent.
• Second, a growing gap between perception and reality. Many owners assume their business qualifies in full, often based on historic advice or long-standing structures.

In some cases, that assumption may no longer be true.

A Changing Policy Landscape

Alongside HMRC’s evolving approach sits a broader policy conversation.

Business relief has come under increasing scrutiny as part of the wider debate on wealth taxation. While no major reform has yet been enacted, the direction of travel is clear: reliefs of this scale are unlikely to remain untouched indefinitely.

For business owners, the challenge is not just today’s position, but how robust that position would be under future change.

Preparing for the shift

We recommend a robust review of business relief eligibility, considering:

• The balance between trading and investment activity.
• The role of surplus or non-operating assets (such as excess cash or investment property).
• How the business would be understood by an external reviewer, such as HMRC.
• How resilient the position would be under potential future reform.
• Maximising available allowances and ensuring holding periods are met.

In many cases, addressing these areas early can significantly strengthen, or protect, a future claim.

Preserving your family business

For family businesses, succession is rarely just financial. It is about continuity, responsibility, and often a sense of legacy built over many years.

Business relief was designed to support that continuity. But relying on that intention alone is no longer enough.
Clear evidence, well-considered structuring, and proactive planning are now essential.

When approached early and strategically, it is still entirely possible to pass a business on intact. But it increasingly requires the same level of attention as any other critical business decision.

For more information, visit: https://www.geraldedelman.com/services/family-office/