What Has Changed to Business Property Relief in 2026
The inheritance tax business property relief changes in 2026 are the most significant reform to this relief since it was introduced nearly 50 years ago. Before 6 April 2026, a qualifying trading business could pass to heirs completely free of the standard 40% IHT rate, regardless of value. A £10m agency, fully qualifying for Business Property Relief, could be inherited without a penny of inheritance tax.
That changed in the Autumn Budget on 30 October 2024. From 6 April 2026, the rules are:
- The first £2.5 million of combined Business Property Relief (BPR) and Agricultural Property Relief (APR) assets still attracts 100% exemption from IHT
- Any value above £2.5 million now receives only 50% relief
- The effective IHT rate on the excess is 20%: that is 50% of the standard 40% IHT rate applied to the taxable half
- AIM-listed shares lose their 100% BPR status entirely and now receive a flat 50% relief at any value
The government originally announced a £1 million cap in October 2024. After significant lobbying from farming and business groups, the threshold was raised to £2.5 million per person in December 2025, with any unused allowance transferable to a surviving spouse or civil partner. The relevant GOV.UK guidance is at Agricultural property relief and business property relief changes.
Who Is Affected by the New Business Property Relief Rules
For most small agencies, the £2.5m threshold means the new rules don't change anything. A marketing consultancy turning over £400k with modest retained profit is worth well under £2.5m and remains fully covered by BPR at 100%.
But for founders who have built something substantial, the threshold bites sooner than many expect. UK agencies typically sell for 3 to 6 times EBITDA, with some high-margin, recurring-revenue businesses achieving 8x or more. At those multiples:
- An agency with £500k annual EBITDA valued at 5x has a £2.5m business, right at the cap
- An agency with £800k EBITDA at 4x is worth £3.2m, with £700k above the cap, with a potential IHT cost of £140,000 on the excess
- An agency generating £1.5m EBITDA at 5x is worth £7.5m; the £5m above the cap carries a potential IHT bill of £1,000,000
Our agency valuation guide covers how UK agencies are typically valued and what drives EBITDA multiples. If you haven't had a valuation done recently, that is the starting point before modelling your IHT position.
What the New Rules Mean in Practice: Three Worked Examples
The worked examples below use the standard nil rate band of £325,000 with no other reliefs applied, to isolate the BPR calculation. In practice, the full picture involves other assets, the residence nil rate band (up to £175,000 per person), and any existing trusts, all of which interact.
Example 1: Agency worth £1.5m (not affected)
Full BPR applies at 100%. IHT on the business: £0. The April 2026 changes make no difference to this estate.
Example 2: Agency worth £3m (partially above the cap)
First £2.5m: 100% relief, no IHT. Remaining £500k: 50% relief. Taxable portion: £250,000. IHT at 40%: £100,000. Before April 2026, this business would have passed on entirely IHT-free.
Example 3: Agency worth £6m (significantly affected)
First £2.5m: 100% relief. Remaining £3.5m: 50% relief. Taxable portion: £1,750,000. IHT at 40%: £700,000. Before April 2026, this business passed on IHT-free. From April 2026, the estate owes £700,000, often requiring a sale of part of the business to fund the bill unless the instalment option is used.
The 10-year interest-free instalment option helps with cash flow: HMRC allows the IHT due on BPR assets to be paid in equal annual instalments over a decade. This prevents a forced sale in the year of death, but it does not reduce the tax owed. Before adjusting your salary and dividend extraction strategy in later years, it is worth modelling whether retaining more profit in the business increases your IHT exposure above the cap.
The Spousal Transfer: How Couples Can Use a Combined £5m Allowance
Any unused portion of the £2.5m BPR allowance is transferable to a surviving spouse or civil partner. This mirrors how the standard nil rate band transfer has worked since 2007.
Critically, the spousal transfer applies even if the first death occurred before 6 April 2026. So if your spouse died in 2023 and did not use their BPR allowance, their full £2.5m transfers to you. On your death, up to £5m of combined qualifying business and agricultural assets can pass at 100% relief, on top of both nil rate bands.
For agency owner couples who split shareholdings between them, this is a significant planning tool. But it only works if the will is structured correctly:
- If assets pass to the surviving spouse at the first death via the spouse exemption, the BPR allowance of the first to die has not been consumed against business assets and transfers intact
- If business assets pass directly to children at the first death and BPR is claimed, that uses up the deceased's allowance
- Wills written before October 2024 do not address this and need reviewing with a solicitor
The £2.5m allowance also refreshes every seven years, which matters for lifetime gifting strategies discussed below.
AIM Shares, Trusts, and Lifetime Gifts: Where It Gets More Complex
Three specific scenarios introduce additional complexity that agency owners with broader investment portfolios or existing estate planning arrangements need to understand.
AIM shares: If you hold AIM-listed shares as part of an IHT planning strategy, the change is material. AIM shares previously attracted 100% BPR after two years of holding at any value. From 6 April 2026, AIM shares receive a flat 50% relief regardless of value. Importantly, AIM shares do not count against your £2.5m allowance for private trading business assets; the two pools are separate. But the guaranteed tax-free status of AIM-based IHT planning has ended.
Trusts: The £2.5m cap applies to assets settled into trust as well as outright transfers. Trusts that hold qualifying business or agricultural property are subject to the same limit. If your estate plan involves a business property trust established before October 2024, trustees should review whether the structure remains optimal under the new rules.
Lifetime gifts: the catch that surprises most owners. If you gifted qualifying BPR assets on or after 30 October 2024 and you die on or after 6 April 2026, those gifts count against your £2.5m allowance. A gift of £1.5m of agency shares made in November 2024 leaves only £1m of BPR allowance available at death. The seven-year gift rule still applies for the general IHT exemption, but the BPR cap applies to post-Budget gifts retroactively. If you made any qualifying gifts between October 2024 and April 2026, model the combined exposure with an accountant before assuming your estate is fully protected.
What Agency Owners Should Do Now
The new rules do not make Business Property Relief redundant. For the majority of agency owners, £2.5m of 100% relief is still a substantial exemption. But for those building higher-value businesses, succession planning needs to adapt. Here is a practical list of actions.
- Get an informal valuation: If you don't know whether your agency sits above or below the £2.5m threshold, start there. An EBITDA-based estimate using up-to-date management accounts gives you a working figure. Our agency valuation guide explains the multiples UK agency buyers typically apply across different business profiles.
- Update your will: Wills written before October 2024 don't reflect the new allowance structure or the spousal transfer as it applies to BPR. A solicitor review is essential, especially for married couples where the first death could leave a large unused allowance unclaimed.
- Consider equalising shareholdings: If one spouse holds significantly more of the company than the other, gradual equalisation ensures both parties have a £2.5m allowance at death. On the second death, a combined £5m of qualifying assets passes at 100% relief.
- Review your pension position: Unused pension funds currently fall outside your estate for IHT purposes (though from April 2027, pension funds become subject to IHT). With BPR now capped, employer pension contributions become even more valuable as a way to hold wealth outside the estate. Our pension contributions guide for directors covers how to structure employer contributions tax-efficiently.
- Build IHT planning into your annual tax review: IHT exposure changes as your business grows. Our annual tax review checklist for directors includes prompts to review your succession and IHT position alongside your salary, dividend, and corporation tax planning each year.
- Understand the 10-year instalment option: IHT due on BPR and APR assets can be paid in 10 equal interest-free annual instalments, preventing a forced business sale. The option must be elected on the IHT return. It is not automatic.
- Confirm your two-year holding period: BPR requires two years of continuous ownership immediately before death or gift. If you have recently restructured your agency, reorganised share classes, or changed corporate form, confirm with an accountant that the holding clock has not reset.
Frequently Asked Questions
What is Business Property Relief and how does it work?
Business Property Relief (BPR) is an inheritance tax relief that applies to qualifying business assets held for at least two years. Before April 2026, BPR gave 100% IHT exemption on qualifying assets with no cap: a business worth £10m could pass to heirs entirely free of the standard 40% IHT rate. From 6 April 2026, 100% relief is capped at the first £2.5m of combined BPR and Agricultural Property Relief assets. Excess value above that receives 50% relief, giving an effective 20% IHT rate on the excess (50% of the 40% standard rate).
What is the new BPR limit from April 2026?
From 6 April 2026, the 100% Business Property Relief allowance is set at £2.5 million per person, shared across both BPR and Agricultural Property Relief (APR) assets combined. Assets qualifying for BPR above that threshold receive 50% relief, so the effective inheritance tax rate on the excess is 20%. Any unused allowance can transfer to a surviving spouse or civil partner, giving couples a combined allowance of up to £5 million at 100% relief.
Does Business Property Relief apply to my agency shares?
Shares in an unquoted trading company typically qualify for Business Property Relief, subject to the two-year holding rule. An agency operating as a limited company providing marketing, design, PR, development, or similar services, is generally a trading business for BPR purposes, as long as it does not hold excessive non-trading assets such as surplus cash or investment property. The definition is not automatic: HMRC can challenge BPR claims where a significant portion of assets are classified as excepted assets with no active business use. If your agency holds substantial cash reserves or investment assets, take professional advice before assuming full BPR eligibility.
What is the two-year holding rule for BPR?
To claim Business Property Relief, you must have held the qualifying business property for at least two years immediately before the transfer, whether at death or as a lifetime gift. Business reorganisations and share exchanges can sometimes continue the original holding period, but any restructuring should be reviewed by a specialist to confirm the clock has not reset. Agency owners who have recently converted from sole trader to limited company, or reorganised share classes, should verify the two-year holding period applies before making succession plans.
Will my spouse receive my unused BPR allowance?
Yes. Any unused portion of your £2.5m BPR allowance is transferable to a surviving spouse or civil partner, even if the first death occurred before 6 April 2026. This means a couple can shelter up to £5m of qualifying business and agricultural assets at 100% relief across both estates. However, the will structure needs reviewing: if assets pass to the surviving spouse at the first death via the spouse exemption, the BPR allowance of the first to die must be formally claimed when the survivor's estate is assessed. Wills written before October 2024 are unlikely to be structured for this.
Do lifetime gifts affect my BPR allowance?
Yes. If you gifted qualifying BPR assets on or after 30 October 2024 (the date of the Autumn Budget) and you die on or after 6 April 2026, those gifts count against your £2.5m allowance. For example, a gift of £1.5m in agency shares made in November 2024 leaves only £1m of BPR allowance available at death. The seven-year gift rule still applies for the general IHT exemption, but the BPR treatment of post-Budget gifts is now subject to the cap. If you made any qualifying gifts between October 2024 and April 2026, model the combined exposure with an accountant.
Can IHT on business property be paid in instalments?
Yes. From 6 April 2026, inheritance tax payable on assets qualifying for Agricultural Property Relief or Business Property Relief, including the portion above the £2.5m cap, can be paid in up to 10 equal annual instalments, interest-free. This prevents families from being forced to sell a trading business immediately to fund an IHT bill. The instalment option does not reduce the total tax owed; it spreads the payment over a decade. The option must be elected on the IHT return submitted to HMRC. It is not applied automatically.
What happened to BPR on AIM shares in 2026?
AIM-listed shares that previously attracted 100% BPR now receive only 50% relief from 6 April 2026, regardless of value. This applies to all AIM holdings, not just amounts above a threshold. Importantly, AIM shares are treated separately from private trading business assets and do not count against your £2.5m allowance for unlisted business property. So if you hold a private agency worth £2m and AIM shares worth £500k, the agency uses £2m of your £2.5m allowance while the AIM shares are subject to their own flat 50% relief outside that pool.
How Alto Can Help
Alto Accounting is an ACCA registered practice (2000003070) specialising in UK agencies and UK expats. We work with agency founders to model IHT exposure under the new BPR rules, review shareholding structures, and coordinate with estate planning solicitors so your succession plan is current and effective.
If you are building a business you plan to pass on or sell, getting the tax position right now costs far less than discovering it too late. Book a free consultation to discuss your position.