Business Owners Urged to Plan Ahead of Changes to Business Property Relief
A commercial insurer is urging family-owned businesses to prepare for potentially higher inheritance tax bills before proposed changes to Business Property Relief (BPR) come into force.
As of April 2026, 100% Business Property Relief (BPR) – which allows qualifying business assets to be passed down free of inheritance tax – will be capped at £1 million per person. Only 50% BPR will be available on any excess value, meaning half the excess value will be included in the owner's inheritance tax calculation.
Sean McCann, Chartered Financial Planner at commercial insurer NFU Mutual, said:
'While many of the headlines have focused on the impact of the Budget changes on the farming community, the cap on Business Property relief from April 2026 will have a huge impact on many business-owning families – including diversified agricultural and rural businesses.
'Business Property relief was introduced to protect and encourage the continuation of trading businesses, ensuring that on the death of the owner the family wasn't forced to sell assets or borrow money to pay inheritance tax. The changes to BPR are therefore understandably causing significant anxiety among many business owners.
'There are a number of steps business owners can do to mitigate the impact of the changes, and they should be proactive in preparing themselves for the future.'
Three Top Tips for Business Owners
Make use of both spouse's allowance
Sean said:
'The £1 million Business Property Relief allowance is per person not per business. If you are married or in a civil partnership it can make sense from an inheritance tax planning perspective to ensure that each spouse is able to pass on part of the value of the business to the next generation on their death.
'Unlike the standard £325,000 tax free allowance and the £175,000 residence nil rate band that is available if leaving a share in your family home to a 'direct descendant', the £1 million 100% BPR allowance cannot be transferred to your spouse on death. If it isn't used it is lost.
'Every family and every business are different, so it makes sense to take advice based on your own circumstances.'
Bring forward your succession plans
Sean explained:
'It's likely as a result of these changes that many business owners will bring forward their succession plans. Any gifts made more than seven years before death normally escape inheritance tax.
'Although gifting assets or shares in a business can trigger a capital gains tax liability, it may be possible to claim gift holdover relief which can defer any capital gains tax until the new owner disposes of the assets or interest in the business.
'Currently, a business that qualifies for 100% Business Property Relief can be left free of inheritance tax without limit. Any capital gain that has accrued is wiped on the owner's death. This means should the family sell shortly after they can potentially escape both inheritance tax and capital gains tax.
'It's important to discuss with the next generation what their plans are. From next April there is the potential for a double tax hit if you gift the business during lifetime, die within seven years which triggers an inheritance tax bill, the family then sell shortly after your death and that triggers a capital gains tax bill on the held over gain.
'Whatever your plans, it's important to take advice on the options and the implications.'
Check your partnership or shareholder agreements to avoid a nasty shock
Sean said:
'Some partnership and shareholder agreements contain clauses that mean the ability to claim Business Property Relief is lost, which can lead to significantly higher inheritance tax bills.
'An agreement that contains a 'binding contract for sale' – meaning on the death of an owner the surviving business owners must buy the deceased's share of the business and the deceased's family must sell – will lead to the loss of Business Property Relief. The good news is this clause can be replaced with an 'option' agreement, which would give the surviving business owners the option to buy and the deceased's family the option to sell, which would preserve the relief.
'It's important to get your partnership or shareholder agreement reviewed to ensure you maximise the relief available and don't pay more inheritance tax than necessary.'
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