What is Business Property Relief for inheritance tax?

What types of property qualify for Business Property Relief and what rates of relief apply? Eamonn Daly of Meridian Private Client Solicitors explains how Business Property Relief can reduce your inheritance tax.

What is business property relief?

Business property relief (BPR) is an inheritance tax (IHT) relief that can reduce the value chargeable to tax of certain business assets (“relevant business property”) transferred on death and in lifetime and on trusts charges.

Depending on the asset involved, the value transferred may be reduced by either 100% or 50%, potentially eliminating IHT or reducing it significantly.

Until 6 April 2026, 100% BPR could apply to an unlimited value of qualifying assets. From that date, the default rate of relief is 50%, with full (100%) relief restricted by a new allowance.

How did business property relief change from 6 April 2026?

From 6 April 2026, BPR is generally limited to 50%. A new £2.5 million “100% relief allowance” (set to increase with CPI from 6 April 2031) applies per individual.

The allowance is shared between assets qualifying for 100% BPR and/or agricultural property relief (APR). Any qualifying value above the allowance benefits only from 50% relief, resulting in an effective IHT rate on death of 20% on the excess.

Where more than one qualifying asset is transferred on the same day or held on death and their aggregate value exceeds the allowance, the relief is apportioned proportionately between them.

For lifetime gifts, the allowance refreshes every seven years. Where qualifying lifetime gifts to individuals are survived by seven years, they do not use the allowance. No immediate IHT will be triggered on chargeable gifts (for example, gifts to trusts) of qualifying assets falling within the allowance in any seven-year period.

Any unused allowance is transferable on death to a surviving spouse or civil partner and may be claimed against the estate of the survivor, including where the first death occurred before 6 April 2026.There could then be £5 million 100% relief allowance available on the second death.

Certain shares/securities that are traded but treated as unquoted for IHT purposes (for example AIM traded shares) can continue to qualify for BPR but only at 50%.

Assets which qualify for 50% relief only do not use any of the 100% relief allowance.

Where the event giving rise to the IHT charge occurs on or after 6 April 2026, IHT on relevant business property may be paid by equal annual instalments over ten years, with interest running only on overdue instalments.

How does business property relief apply within trusts from 6 April 2026?

A separate “100% trust relief allowance” applies for certain trust charges, including ten‑year anniversary and exit charges.

Broadly, each trust created before 30 October 2024 has its own trust relief allowance of £2.5 million available provided qualifying property was held immediately before that date. This applies only where qualifying business or agricultural property was held in the trust immediately before 30 October 2024, regardless of how many trusts were created by the same settlor or the value of the property then held. Any excess qualifying value benefits only from the default 50% relief, resulting in a maximum IHT rate of 3% for relevant property regime charges in trusts. For these trusts, the limit applies from the trust’s first ten-year anniversary on or after 6 April 2026.

Trusts created on or after 30 October 2024 by the same settlor share a single £2.5 million 100% trust relief allowance. The allowance is applied chronologically, based on the value of qualifying assets when they become comprised in each trust.

What businesses qualify for business property relief?

To qualify the business must be a trading rather than an investment business.

Relief is not available where the business consists wholly or mainly of dealing in securities, stocks or shares, land or buildings, or of making or holding investments.

Whether a business is mainly engaged in these “non-trading” activities is assessed “in the round”. HMRC considers factors including activities carried on, asset base, income sources, turnover and profit, capital employed and the time spent by owners and staff.

A non-trading holding company could generally be considered an investment company, meaning BPR would not be available. However, shares or securities of a holding company can qualify if the company is wholly or mainly a holding company of subsidiaries that are themselves wholly or mainly trading.

The letting of property/land without provision of significant additional services is treated as an investment activity. HMRC has argued that many land-based businesses are non-trading.

What assets qualify as relevant business property for business property relief?

After 5 April 2026, 100% relief depends not only on meeting the general conditions, but also on whether the asset falls within a category of relevant business property eligible to use the allowance.

The following assets may qualify for 100% relief (subject to the allowance):

a business carried on by a sole trader
an interest in a business, such as a partnership share
unquoted shares that are not traded on a recognised stock exchange
certain unquoted securities (not being shares) where the transferor had control of the company

Other types of relevant business property qualify for BPR at 50% only:

unquoted shares traded on a recognised stock exchange designated as not listed (this category includes AIM traded shares)
land, buildings, machinery or plant used wholly or mainly for business purposes by a company the transferor controls or a partnership in which they are a partner
land, buildings, machinery or plant held in a trust used wholly or mainly for the purposes of a business carried on by an individual who has an interest in possession in the trust
quoted company shares or securities where the transferor has a controlling interest
unquoted securities traded on a recognised stock exchange where the transferor has control of the company
unquoted shares traded on an exchange outside the United Kingdom that is not a recognised stock exchange
unquoted securities traded on an exchange outside the United Kingdom (not a recognised stock exchange) where the transferor has control of the company

How long must the assets be owned for business property relief to apply?

In most cases, qualifying business property must either have:

been owned by the transferor throughout the two years immediately before transfer; or
replaced other qualifying property, with combined ownership of at least two out of the five years ending with the transfer.

Where there are two successive transfers one of which was on death, the later transfer can qualify for relief even if the two-year ownership condition is not met, provided the earlier transfer qualified.

Property inherited from a spouse or civil partner is treated as acquired when the deceased spouse or civil partner acquired it.

When might business property relief be excluded or restricted?

The value of assets held in a business but not used wholly or mainly for business purposes for at least two years before transfer, and not required for future use, is excluded when calculating relief. This might include surplus cash built up in the business or assets used by the owner personally rather than for business purposes.

BPR is lost if a binding contract for sale exists before transfer, except in limited circumstances.

Where a liability has been incurred to acquire, maintain or enhance relevant business property, it reduces the relievable value even if secured on other property.

Can lifetime gifts qualify for business property relief?

Where the transferor dies within seven years of a gift of relevant business property, BPR is reassessed. Relief is available if the recipient owned the property continuously until the transferor’s death (or the recipient’s earlier death) and it still qualifies as relevant business property at that time.

BPR can be preserved if the recipient disposed of the original property and reinvested the whole of the consideration in replacement relevant business property within three years of disposal. The replacement property must be held at the transferor’s death, or acquired within that period if the transferor dies before acquisition.

Where a business has been incorporated or a share-for-share exchange has occurred after the gift, the new shares are treated as the original property.

Transitional rules apply to lifetime transfers made on or after 30 October 2024 where the transferor dies on or after 6 April 2026 within seven years of the transfer. The £2.5 million allowance and 50% relief on excess value apply in these cases.

How can business property relief be preserved and maximised?

BPR can be maintained or maximised in several ways.

Although the new regime limits 100% relief, established planning strategies remain effective. There is increased focus on options to use the allowance in lifetime and reduce values above it. Even at 50% though, BPR produces a materially lower IHT liability than for non‑qualifying assets.

Given the scale of the reforms and the possible value at stake, HMRC is expected to increase scrutiny of valuations, trading status and the availability of relief, making specialist advice and advance planning essential.

Specific circumstances need to be taken into account but possible strategies might include:

Lifetime and succession planning

Lifetime gifts fall out of the IHT calculation after seven years. Fragmenting company shareholdings through gifts, for example between family members, can increase the number of 100% relief allowances available and attract valuation discounts for minority holdings.
Gifts of qualifying assets up to £3.15 million to trusts can provide asset protection and control benefits without an immediate IHT charge. This reflects 100% relief on £2.5 million and 50% relief reducing the excess (£650,000) to within the nil-rate band (£325,000).

Wills and trust planning

Married couples or civil partners could consider equalising their business interests and leaving them to someone other than each other on first death. This uses the maximum 100% relief allowances and may attract a valuation discount on the survivor’s reduced holding.
If the business owner crystallised BPR on death by leaving business property to a discretionary trust in their will, the survivor could be a beneficiary, and trustee, without it forming part of their estate.
A sub-fund trust structure in the business owner’s will could ensure no IHT is payable on first death whilst providing additional planning flexibility. This type of structure can allow business property to be exchanged for chargeable assets (such as cash, property or investments), that are treated as part of the survivor's estate for IHT purposes, without other taxes arising. The business property received by the survivor can then requalify for BPR after two years’ ownership, effectively doubling the relief available.

Business structure and trading status

BPR may be lost if business operations shift from wholly or mainly trading towards non-trading activities such as investment or property letting. To preserve relief on the trading element, investments or properties may need to be separated into another entity.
Conversely, where trading and investment activities are conducted through entirely separate entities, BPR would only be available for the trading entity even if its value exceeded 50% of the combined value. Incorporating a holding company to own the trading business as a subsidiary and the investments directly may attract relief for the whole group. However, this structure could affect business asset disposal relief (BADR) availability on a subsequent disposal if the non-trading element exceeds 20% of the group’s activities.
If significant surplus cash is retained, it should be clear why it is required for the business (for example working capital, planned expansion, contingent liabilities). Otherwise if it is genuinely surplus, planning may involve investing in a new business use or extracting it (taking account of other tax consequences) to move it out of the trading entity.

Shareholder/partner arrangements

Transferring assets used by the business but owned personally by a controlling shareholder or partner to the business could increase the BPR rate from 50% to 100% (subject to the £2.5 million allowance). Other tax consequences, such as capital gains tax and SDLT on the transfer, should be considered.
A lifetime agreement requiring surviving co-owners to purchase a deceased’s interest is likely to constitute a binding contract for sale, so BPR would not be available. Cross-option arrangements (where each party has an option to buy or sell exercisable following death) preserve relief on the deceased’s interest because no binding contract exists until an option is exercised. An accruer clause in a partnership agreement, under which the deceased’s interest passes to surviving partners who must pay the estate a price for it, might also not cause BPR to be lost.
Repayments from directors’ loan accounts allow funds to be withdrawn from a company without income tax and National Insurance contributions consequences. However, BPR is not available on the loan value. To qualify for BPR, the loan could be converted to share capital before transfer. A conversion by way of rights issue means the two-year ownership period runs from the date of acquisition of the original holding rather than the conversion date.

Planning around a sale

Where a business is sold and cash or other non-qualifying assets are received, these would not benefit from BPR on a later gift or death. However, planning can crystallise relief on a gift made before the sale and minimise future IHT charges. Alternatively, the replacement property provisions may preserve relief on a later transfer if the proceeds were reinvested in qualifying assets within the permitted timeframe.

How can inheritance tax be funded if there are insufficient other assets?

Although BPR can significantly reduce inheritance tax exposure, the new regime means that effective planning will often involve managing residual liabilities rather than eliminating them entirely.

Although inheritance tax attributable to relevant business property may be paid by instalments, funds must still be found annually to avoid interest accruing on unpaid amounts.

Life assurance can be used to fund IHT liabilities. Early planning is important as premiums increase with age and health conditions may affect insurability. Policies should be written in trust to prevent the proceeds themselves being subject to IHT. Term policies can cover potential liabilities on lifetime gifts if the transferor does not survive seven years.

Where unquoted company shares are subject to IHT, using the company itself to fund the liability can give rise to additional tax charges:

Dividends or other income could be used but are subject to income tax at up to 39.35% on dividends or 45% (47% from 6 April 2027) on other income.
Loans from the company may trigger a corporation tax charge at 35.75% if not repaid within 9 months and 1 day after the end of the company’s accounting period in which the loan was made.
Other options include share buy-backs (potentially funded by key person insurance), capital reductions, and demerging assets for sale or refinancing. These require careful planning to ensure proceeds are subject to capital gains tax (maximum 24%) rather than higher income tax rates.

About the author

Eamonn Daly is a partner at Meridian Private Client Solicitors, a Chartered Tax Adviser and a member of the Society of Trust and Estate Practitioners (STEP).

Find out more

Business Relief for Inheritance Tax (GOV.UK)

Business Asset Disposal Relief (GOV.UK)

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Publication updated

1 May 2026

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.