Many business owners and families are in for some changes to Inheritance Tax (IHT) in 2026 that are likely to change the way that wealth is planned for. Because these reforms are set to be implemented through BPR adjustments, it’s important you know what it means, how it might impact your assets, and what can be done to keep control of the effects. To further protect your interests feel free to contact a property accountant for professional advice.
Understanding Business Property Relief: Insights from a Property Accountant
For many years, Business Property Relief has been a key tool for easing the IHT burden on family businesses and qualifying trading enterprises. Basically, BPR is intended to the property that is transferred is a business or interest in a business or unquoted shares in a trading company and 50 per cent for controlling holdings in a quoted trading company or assets used by the transferor’s company or partnership or in a life-tenant’s business. The mechanism guarantees that the sweat equity put into a business can be passed on to future generations without being eaten up by excessive tax liabilities. It is worth considering consulting a property accountant, as they will be able to offer expert advice on how to maximize the benefits of Business Property Relief.
Key Reforms Coming in 2026
Under the new set of reforms which is due to be implemented from 6 April 2026, several key changes will be brought to the existing framework in a bid to modernise and strengthen it. These are crafted in such a way that the updates would be more balanced and at the same time prevent potential tax avoidance schemes.
The Introduction of a £1 Million Allowance
It was announced at Autumn budget 2024 that, from 6 April 2026, there will be a £1m limit on the combined value of business and agricultural property that qualifies for 100% relief. The new rules will mean that any business assets that are currently 100% relieved will continue to be 100% relieved up to the value of the allowance. This change is a departure from the previous approach, which did not cap the value of relief in this way.
Reduced Relief for Assets Exceeding the Allowance
With assets over £1m threshold, the relief available is 50% of the asset’s value. So larger estates will be subject to a relatively much higher tax burden compared to before. Business owners and families are required to take a more proactive approach to plan the estate since the potential tax liability on the amount in excess of the allowance becomes a critical area of focus.
Impact on AIM-Listed Shares
In the past shares traded on the AIM have been popular IHT planning routes because they were eligible for full BPR. Under the 2026 reforms, 50 per cent relief will be available to AIM list shares and there will be no £1 million allowance. That change would have dramatic consequences for investors who have used AIM shares as the cornerstone of their estate planning strategy.
New Anti-Forestalling Measures
The reforms also include strict anti-forestalling rules to address gaps and such potential loopholes to limit last minute tax avoidance. If the donor dies in the seven years following the reforms coming into force and gifts are made on or after 30 October 2024, any such gifts will be dealt with under these rules. In addition, any new trusts set up after this date will have just one £1m allowance, thus avoiding splitting assets between multiple trusts to take advantage of tax benefits. Some of the measures are intended to make estate planning more equitable and more uniform.
Implications for Business Owners and Families
The proposed reforms will have a different effect depending on your business structure and the structure of your estate. For example, in a family business or partnership, each individual £1 million allowances for an owner would result in a married couple effectively having up to £2 million of fully relieved assets. But beyond this, any value would attract a higher IHT charge since it would incur a 50% relief rate.
This restructuring in practical terms may mean reevaluation of current asset transfers as well as the overall structure of your business. The relief might therefore involve changing who owns the shares, reviewing the use of trusts, and, perhaps, rethinking the way partners own shares to get the best possible result. The aim is to protect as many of a business’s assets as possible for the next generation while under the tightened tax rules.
Leveraging Lifetime Gifting
These changes don’t change the fact that lifetime gifting is still a robust tool in the IHT planning toolkit. If the donor survives for seven years after the transfer, gifts made in one’s life time can still escape IHT. This is a time-tested strategy that gives flexibility and can be very useful when used in conjunction with other planning mechanisms to limit the impact of the new relief thresholds.
Planning for the Future
Since these reforms are so comprehensive, it’s critical to take the time to do a complete succession planning. A few strategic steps to take include the following:
Precise Business Valuations: Begin with an accurate valuation of the business assets. Assessing your exposure under the new rules is all about understanding the current worth of your business.
Review Your Will: The change in landscape means that you would want to review your will to verify that it is not out of sorts with the new tax structure. It may entail restructuring of asset transfers or reconsidering the use of trusts.
Consult a Specialist: Given how complex the reforms are, they call for expert advice from a Specialist. Real estate financial advisors, tax accountants and property accountant can and will be able to offer unique strategies to match your profile.
Conclusion
The 2026 reforms to Business Property Relief and Inheritance Tax are a major policy development in any estate planning and the way business assets will be treated. As such, these changes also cause challenges, but they also open doors to more strategic planning and a clearer picture of how to fully protect your legacy. Proactive steps may include: correct valuations, reviews of the will, use of lifetime gifting. As a matter of course, it is always wise to obtain professional advice to ensure your estate plan complies with the new regulations and so it will fulfill your requirements of maintaining your business and preserve your family wealth for the long run.
Recognising these changes now will permit you to navigate associated challenges as opportunities, so you protect your legacy for many generations to come.