Business Property Relief Explained — Cutting IHT on Family Businesses

For families who own a trading business, Business Property Relief (BPR) has long been one of the most valuable tools in the inheritance tax planning toolkit. Used properly, it can reduce the taxable value of qualifying business assets by up to 100%, allowing a family company or partnership to pass to the next generation without being crippled by a 40% tax bill on death.

From April 2026, however, the rules have changed significantly. The government has reformed BPR so that 100% relief now applies only to the first £1 million of combined qualifying business and agricultural assets. Anything above that threshold attracts 50% relief, and AIM-listed shares — which used to qualify for 100% — are now capped at 50%. For business-owning families in England and Wales, that means the planning conversation is more urgent than it has been for decades.

In this guide we set out what BPR is, what qualifies and what does not, how the 2026 cap works, and the practical steps executors and business owners should be taking now.

What is Business Property Relief?

Business Property Relief is a statutory relief from inheritance tax on certain business assets. It applies both on death and on lifetime transfers, and it works by reducing the transferable value of qualifying property — either by 100% or by 50%, depending on the asset type and, from April 2026, its value.

The relief matters because inheritance tax is charged at 40% on estates above the available nil rate bands. For 2026/27 the standard nil rate band (NRB) remains £325,000 and the residence nil rate band (RNRB) is £175,000. Without BPR, a family trading company worth £2 million sitting inside an estate could generate an IHT liability of £800,000 — enough to force a sale of the business to pay HMRC. With BPR, that liability can be reduced or eliminated, keeping the business intact for the next generation.

What qualifies for 100% relief (subject to the £1m cap)

The following categories of business property qualify for 100% BPR up to the new £1 million combined cap, and 50% relief on any excess:

• Sole trader businesses — the whole business, including its goodwill, plant, stock and premises, provided it is a trading concern rather than an investment vehicle.
• Partnership interests — a partner’s interest in a trading partnership, including LLPs that carry on a genuine trade.
• Unquoted shares — shares in a private limited company, including most family trading companies. This is often the single largest asset in a business owner’s estate.

The critical point is that these assets must relate to a trading business. HMRC’s guidance on Business Relief confirms that the business must not consist wholly or mainly of dealing in securities, stocks, shares, land or buildings, or holding investments.

What only qualifies for 50% relief

Some categories have always attracted a lower 50% rate, and from April 2026 they are joined by AIM shares:

• AIM-listed shares — previously eligible for 100% BPR after two years of ownership, AIM shares now qualify for only 50% relief. This is one of the biggest single changes in the 2026 reforms and affects a large population of investors who bought AIM stocks specifically for IHT planning.
• Controlling shareholdings in listed companies — a rare category, but still 50%.
• Land, buildings, plant or machinery owned personally but used by a company you control or a partnership you are a partner in — 50% relief.

What does not qualify at all

The exclusion that catches most families is the “investment business” rule. If more than half of a company’s activities consist of holding investments — including buy-to-let property, share portfolios, or cash on deposit that is not needed for the trade — the whole company can fail the BPR test. This is an all-or-nothing outcome: there is no partial relief for the trading element within a mixed company.

Typical assets that do not qualify include:

• Buy-to-let property portfolios held through a company or partnership.
• Investment holding companies whose income is dividends, interest or rent.
• Businesses subject to a binding contract of sale at the date of death — see the trap below.
• Assets not used in the business (“excepted assets”) such as surplus cash beyond working capital, or a director’s holiday home held on the company balance sheet.

The two-year ownership rule

To qualify for BPR the asset must generally have been owned by the deceased for at least two years immediately before death. There are limited exceptions — for example, where the property replaced other qualifying business property, or where the property was inherited from a spouse or civil partner (in which case the spouse’s period of ownership can be added).

The two-year rule is why we always recommend that business owners regularise their affairs early. Restructuring a company, incorporating a partnership, or moving assets between family members can inadvertently restart the clock. If death occurs inside the two-year window, BPR may be lost entirely.

The £1 million cap from April 2026

The single biggest change in 2026 is the introduction of a combined £1 million cap on 100% relief across BPR and Agricultural Property Relief (APR). The cap works as follows:

• The first £1 million of qualifying business and agricultural property attracts 100% relief.
• Everything above £1 million attracts 50% relief, giving an effective IHT rate of 20% on the excess (half of the 40% headline rate).
• The £1 million allowance is per individual and is not transferable between spouses on death (though careful will drafting can preserve both spouses’ allowances).

To illustrate: a family company worth £3 million passing on death now generates £400,000 of IHT (£2 million excess taxed at an effective 20%), where before April 2026 it would have generated nothing. For estates that were built on the assumption of unlimited BPR, this is a material planning problem that needs addressing now.

The contract of sale trap

One of the most damaging pitfalls in BPR planning is the “binding contract of sale” rule. If, at the date of death, there is a binding contract in place for the sale of the business or shares, HMRC treats the asset as a right to receive cash rather than as business property — and BPR is lost entirely.

This trap most often catches partnerships and companies whose partnership agreement or shareholders’ agreement contains an automatic buy-out clause on death. If the surviving partners or shareholders are obliged to buy, and the estate is obliged to sell, BPR falls away. The fix is usually to convert automatic buy-out clauses into cross-option arrangements — where each side has an option, but neither is obliged — which preserves the relief. If you have a partnership or shareholders’ agreement drafted more than a few years ago, this is one of the first documents we ask to see.

The replacement property rule and other planning options

The replacement property rule allows the two-year clock to keep running when qualifying assets are sold and replaced. Broadly, if the sale proceeds are reinvested in other qualifying business property within three years, the combined period of ownership counts. This gives some flexibility to restructure a business without losing accrued BPR.

Other planning options we regularly discuss with business-owning clients include:

• Lifetime gifting of shares — transferring shares during life can lock in relief and start the seven-year clock for potentially exempt transfers.
• Family investment companies and trusts — carefully structured, these can help retain family control while managing the £1m cap across generations.
• Reviewing wills — a discretionary will trust for business assets can preserve flexibility and help both spouses use their £1m allowance.
• Life policies written in trust — to fund the residual IHT bill on the excess above £1m without dipping into business capital.
• Excepted assets audit — cleansing surplus cash and investment assets from the company balance sheet so they do not dilute the relief.

The right combination depends on the size and structure of the business, the family’s objectives, and the ages and roles of the next generation. HMRC’s technical form IHT413 gives a sense of the detail HMRC will expect executors to submit when claiming the relief.

How Curtis Legal can help

We advise business owners across England and Wales on inheritance tax planning and on the administration of estates where BPR is claimed. Whether you are a director looking at succession, a partner reviewing your agreement, or an executor trying to claim relief in a probate application, we can help you work through the 2026 rules and put the right structures in place. Our probate fee for straightforward grants remains £526 from 13 July 2026, and complex estates are quoted transparently at the outset.

If you would like to discuss your family business and the impact of the new £1 million cap, call Curtis Legal on 0800 214 216 for a same-day callback, or use the estimator below to get a sense of the potential IHT exposure on your estate.

To talk through Business Property Relief and how the 2026 reforms affect your family business or estate, call Curtis Legal on 0800 214 216 for a same-day callback, or read our related guides on inheritance tax, estate administration, executor duties, intestacy, contested wills and the broader probate service. See also HMRC’s overview of inheritance tax.