In the run-up to Christmas, the Government issued an updated statement on its planned reforms to Inheritance Tax (IHT) reliefs, specifically Agricultural Property Relief (APR) and Business Property Relief (BPR).
APR is clearly headline-grabbing, but for most family-owned trading companies, BPR is the relief that matters. And while the revised announcement is a softening of the earlier proposals, it does not remove the need for planning. It changes the numbers, and it makes the “valuation conversation” more targeted.
This insight is a practical guide to what the change means for shareholders in family trading companies and the sensible steps to consider now.
TL:DR/Key takeaways:
• BPR is not being abolished, but 100% relief is expected to be capped.
• From 6 April 2026, 100% BPR will apply only up to a new £2.5m threshold per estate.
• Value above the threshold is expected to receive 50% relief (not 100%).
• For larger family businesses, the biggest issue is often liquidity: the tax may be personal, but the wealth is tied up in the company.
• A robust business valuation and a review of BPR eligibility are now essential parts of succession planning.
1. A quick refresher: what BPR does (and why it exists)
BPR is designed to help business assets pass between generations without forcing families into a distressed sale just to fund an IHT bill.
In straightforward terms:
• Shares in a qualifying trading company can attract 100% BPR under current rules.
• Some business-related assets can attract 50% BPR, depending on what is owned and how it is used.
BPR is not automatic. It depends on:
• what is owned (e.g., unlisted shares, certain business assets)
• how the business operates (a trading business vs an investment business)
• how long the asset has been owned
• whether there are complicating factors (for example, business property not needed for future use)
For many owner-managed and family companies, BPR has historically been a cornerstone of IHT planning, particularly where much of the family’s wealth sits inside the company.
2. What is changing from 6 April 2026?
Under the Government’s revised plan, the key change for family businesses is this:
• 100% BPR will be available only up to a new threshold of £2.5m per estate.
• Above £2.5m, qualifying assets are expected to receive 50% relief.
The standard IHT rate is currently 40%, so 50% BPR can translate into an effective IHT cost of 20% on the value above the threshold (because half the value remains chargeable at 40%).
The revised announcement is significant because earlier commentary centred on a lower figure (£1m). A £2.5m threshold will reduce the number of family business shareholders caught by the reform, but for higher-value estates the exposure remains very real.
Also note:
• The Government has announced in the Autumn Budget that the allowance will be transferable between spouses/civil partners, meaning up to £5m of qualifying assets could be passed on between them before considering IHT on those business assets (subject to the detailed rules and how the estate is structured).
3. What this means in practice for family businesses
For most families, the practical impact will fall into one of three scenarios:
A) Share value comfortably within the new threshold
If the value of a shareholder’s qualifying BPR assets is below £2.5m, the reform may not change their position much (assuming BPR applies).
However, “assuming BPR applies” is doing a lot of work there.
In our experience, the risk is rarely that a genuine trading company suddenly “stops being a trade”. The risk tends to sit in grey areas that only show up when someone dies and the estate is being reported:
• surplus cash and investment assets held inside the company
• letting property or other non-trading activities sitting alongside the trade
• assets not clearly required for future business use
So even if you expect to be below the threshold, it’s still worth sense-checking eligibility and documenting the trading narrative.
B) Share value above the new threshold (the liquidity problem)
This is the scenario where succession planning is essential.
A simplified example (ignoring other reliefs/allowances):
• Shares in a family trading company valued at: £4,000,000
• New 100% BPR threshold: £2,500,000
• Remaining value above the threshold: £1,500,000
If that £1.5m only attracts 50% relief:
• Chargeable value becomes: £750,000
• At 40% IHT, potential tax: £300,000
The immediate question is not just “what’s the tax?”
It is “where does the cash come from, and how do we avoid forcing an outcome the family doesn’t want?”
Because the IHT bill is a personal liability of the estate, yet the value sits inside shares that may be:
• illiquid
• subject to shareholder agreements
• difficult to sell without impacting control
This is exactly why advisers and brokers have been pushing valuations: you cannot plan for a number you have not quantified.
C) Multiple shareholders: the family dynamics issue
Many family businesses have:
• parents and adult children each holding shares
• different share classes
• shareholders who are active vs non-active in the business
Once BPR is capped, decisions become more sensitive:
• Who carries the risk?
• Who funds any insurance?
• What happens if one shareholder dies unexpectedly?
• Does the business buy back shares, and on what terms?
• Is there a mechanism to keep control with the intended family line?
This is where tax, legal documents, and commercial reality need to align.
4. Practical steps to consider now
This is not about “panic planning”. It is about making sure your succession plan works.
Here are the steps we recommend family business shareholders consider.
Step 1: Get a robust, defensible valuation (and keep it updated):
• Are you above the threshold today?
• How quickly might you exceed it?
• What is the likely IHT exposure, and in whose estate does it sit?
For companies with:
• volatile profits
• significant retained reserves
• property on the balance sheet
• multiple shareholders or share classes
…a credible valuation narrative is even more important.
Step 2: Review BPR eligibility (“trading vs investment”)
BPR is aimed at trading businesses. A company that is “wholly or mainly” investment may not qualify.
Common family business issues include:
• cash building up beyond working capital needs
• non-trading assets sitting inside the company “because it’s simpler”
• property ownership or letting activity not clearly linked to the trade
In many cases there are commercial reasons for these decisions. The key is understanding the IHT impact and (where appropriate) tidying up the structure well before it becomes a problem.
Step 3: Treat this as broader succession planning, rather than a tax exercise
For trading company shareholders, the best plans tend to integrate:
• wills (and keeping them aligned with current share ownership)
• shareholder agreements
• cross-option arrangements / share purchase provisions on death
• life cover (often written in trust where appropriate) to create liquidity
• an agreed family “playbook” for what happens on a shareholder death
The objective is continuity:
• protect the family
• protect the business
• protect control
Step 4: Build a plan that still works if legislation shifts again
Tax policy can change. The most resilient plans are those that:
• don’t rely on a single relief being perfect forever
• are documented, affordable, and reviewable
• can adapt as values change and family circumstances evolve
5. The bottom line
The revised £2.5m threshold is a meaningful improvement on earlier proposals and it will keep many family business shareholders outside the scope of the reforms.
But for larger family companies, and for shareholders whose wealth is concentrated in their shares, the practical challenge remains: IHT could be a serious liquidity issue.
If you are a shareholder in a family trading company, now is the right time to:
• confirm whether BPR should apply to your shares
• quantify the value and potential exposure
• ensure your succession plan is commercially workable (not just technically “tax efficient”)
If you would like a structured review—valuation, eligibility, and a practical action plan—we can help.
Frequently asked questions (FAQ)
Is BPR being abolished?
No. The current direction of travel is a cap on 100% relief, with 50% relief still available above the threshold for qualifying assets.
Is the £2.5m threshold per business or per person?
The proposal is framed as a threshold per estate. That means it is driven by the shareholder’s personal circumstances and the value of the assets in their estate.
What about spouses/civil partners?
The Government has indicated the allowance will be transferable, which could allow up to £5m of qualifying agricultural/business assets to pass between spouses/civil partners before IHT is due on those assets—on top of other existing allowances.
Does this change anything for AIM/BPR portfolios?
The Government’s statement indicates the treatment of AIM shares is not altered by this specific threshold announcement. If AIM-based planning is part of your wider IHT position, it should be reviewed alongside the new cap rather than in isolation.
When should we act?
Before April 2026. Planning is typically more effective (and less disruptive) when done early, with time to implement changes and ensure the business continues to operate smoothly.
Important notice
This article is general information only and does not constitute tax advice. Inheritance tax and reliefs depend on individual circumstances and the legislation in force at the relevant time. Please take professional advice before acting.
