Business succession -
The changing landscape of business relief (BR): What UK business owners need to know
Discover how the 2026 business relief reforms could impact your estate and what steps you can take now to protect your business legacy.
From April 2026, the UK’s business relief (BR) regime – long a cornerstone of inheritance tax (IHT) planning for entrepreneurs – will undergo its most significant reform in decades.
These changes will reshape how business assets are passed on, reduce the scope of inheritance tax relief available, and introduce new planning challenges for business owners and high-net-worth individuals alike.
If you are a founder, shareholder, or family business owner, understanding the implications of these reforms is important to protecting your legacy. But before examining the upcoming 2026 reforms, let us revisit the fundamentals of business relief and its importance in estate and succession planning.
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What is business relief (BR) and how does it work?
Business relief (previously called business property relief or BPR) is UK tax relief designed to reduce or eliminate inheritance tax (IHT) on certain types of business assets when they are passed on either during a person’s lifetime or on their death. It was introduced to ensure that family-owned businesses could be passed down to the next generation without being sold off to pay a large tax bill.
Business relief eligibility criteria currently applies to:
- Shares in unlisted trading companies
- Shares listed on the AIM (Alternative Investment Market)
- Sole trader businesses or interests in partnerships.
Key requirements of business relief:
- You must have owned the assets for at least two years before transfer (by gift or death)
- To qualify, the business must be actively trading rather than mainly engaged in investment activities. For instance, there is no relief where the business is wholly or mainly dealing in securities, holding stocks and shares, or buying and selling land or buildings.
What is changing in 2026?
New legislation affecting business relief (BR) was announced in the 2024 UK Autumn Statement. The changes are part of a broader reform of inheritance tax reliefs, including both business relief and agricultural relief. Originally the government introduced a restrictive £1 million cap, which could not be transferred. The government revised this decision on 23 December 2025. Here is a summary of the new legislation.
The new legislation, effective from 6 April 2026, introduces the following key changes:
- 100% relief allowance of £2.5 million per individual (or across all trusts established by the same settlor) for combined business relief and agricultural relief
- 50% relief applies to qualifying assets above £2.5 million, resulting in an effective 20% IHT rate on the excess (given the 40% headline IHT rate)
- The allowance is now transferable: any unused portion of the £2.5 million allowance can be transferred to a surviving spouse or civil partner, allowing couples to shield up to £5 million in qualifying assets
- AIM-listed shares will no longer qualify for 100% relief – only 50% relief will apply
- Multiple trusts created after this date will share the £2.5 million cap, limiting the effectiveness of trust planning strategies that rely on business relief
- Over time, all trusts will be subject to the £2.5 million cap, not just those created after 6 April 2026. This means that any business or agricultural relief placed into trust before 30 October 2024 will also be impacted once the trust reaches its 10-year anniversary, significantly reducing the effectiveness of historic trust planning strategies.
These reforms are intended to better target relief at smaller, family-run businesses and farms. However, they also introduce greater complexity and potential tax exposure for larger estates and high-growth companies.
The impact on business owners and entrepreneurs
- Increased inheritance tax exposure – Businesses could face a higher inheritance tax burden, potentially forcing heirs to sell assets or restructure operations to meet tax liabilities.
- Reduced attractiveness of AIM investments – AIM shares, once a popular IHT planning tool due to their 100% relief status, will become less tax-efficient, impacting both private investors and business owners seeking external capital.
- More complex succession planning – The new cap and trust aggregation rules will require more sophisticated estate planning, especially for those using multiple trusts or planning intergenerational transfers.
- Pensions planning must be revisited - From 6 April 2027, most unused pension funds will form part of the client's estate for the purposes of IHT, with personal representatives responsible for reporting and payment; death in service benefits and certain dependant pensions remain excluded.
Real-world example
Sarah, the founder of a UK tech startup, owns 100% of her company valued at £6 million. She is currently single,
• 100% business relief applies to the full £6 million
• IHT due: £0.
The first £2.5 million qualifies for 100% relief
• The remaining £3.5 million receives 50% relief; taxed at 20% effective rate
• IHT due: £700,000 – a significant increase. (£3.5 million × 20% = £700,000).
• The combined allowance is £5 million at 100% relief
• The remaining £1 million receives 50% relief; taxed at 20% effective rate
• IHT due: £200,000.
Five planning strategies for the new business relief era
To navigate the upcoming changes, we recommend that business owners consider the following:
1. Review your estate plan
With the new rules taking effect from 6 April 2026, now is the time to assess how your business and estate plans will be impacted. This includes reviewing your will.
2. Review business valuations
Understanding the current and projected value of your business is essential to determine how much of your estate will fall under the new cap.
3. Review trust structures
If you have used trusts to pass on business assets, you should ensure they are structured to maximise relief under the new rules.
4. Explore alternative planning tools
Consider options such as family investment companies, employee ownership trusts, or life insurance which can help you plan for future tax liabilities.
5. Seek specialist advice
The new rules introduce complexity that requires tailored, expert guidance. A wealth planner, in conjunction with legal and tax advisers, can help you build a strategy that aligns with your goals and the evolving tax landscape.
Next steps: Protect your business and legacy
The 2026 business relief reforms mark a turning point in estate planning for business owners. With the rules becoming more complex and reliefs more limited, proactive inheritance tax planning is now more important than ever.
To ensure your estate is structured effectively and your legacy is protected, speak with your banker to arrange a follow-up meeting with one of our expert Wealth Planners.
In conjunction with legal and tax advisers, they will help you assess your eligibility for business relief, review your current business structure, explore your options, and create a tailored estate plan that secures your legacy in this new era of business relief.
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