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Business Property Relief (BPR) cuts the inheritance tax due on qualifying business assets. From 6 April 2026 the first £2.5 million of combined business and agricultural property passes at 100% relief per person. Anything above that gets 50% relief, which works out as a 20% tax charge on the excess.
Reviewed June 2026 by Author name, ACCA/CTA, IBISS & CO. Written for UK business owners, not advisers. This is general guidance, not personal advice.
The rules you may remember are gone. For decades a qualifying business passed down free of inheritance tax with no upper limit. That ended on 6 April 2026. If your last reading on BPR came from an article written in 2024 or early 2025, some of it is now wrong, including the widely quoted £1 million cap that the government later changed.
Here is where the rules actually stand, what counts, what does not, and the numbers that matter for your estate.
What is Business Property Relief?
Business Property Relief is an inheritance tax relief. It lowers the value of qualifying business assets when you pass them on, either as a lifetime gift or in your estate when you die. The relief comes in two rates, 100% and 50%, and which one applies depends on the asset and, from April 2026, on how much you pass on.
Without relief, inheritance tax hits at 40% on anything above your tax free allowances. BPR exists so that families do not have to sell the business itself just to pay the tax bill on it.
How Business Property Relief works in 2026
The 2026 reform kept the relief but put a ceiling on the generous part. Three changes matter.
The £2.5 million allowance for 100% relief
Each person now has a single allowance of £2.5 million that covers business and agricultural property combined. Qualifying assets inside that allowance still pass at 100% relief, so no inheritance tax falls on them.
The government first announced a £1 million cap in the Autumn 2024 Budget, kept it at £1 million through 2025, then raised it to £2.5 million on 23 December 2025. Plenty of older guides still quote the lower figure. Check the date on anything you read.
The allowance stays at £2.5 million until 5 April 2031, after which it rises with inflation.
50% relief above the cap
Once your qualifying business property passes £2.5 million, the slice above the cap gets 50% relief instead of 100%. Half of that excess stays exposed to the 40% rate, so you pay an effective 20% on it.
A point the scare headlines skip: most owners we work with sit under £2.5 million and owe nothing on the business at all. The cap bites on larger estates, not on the average family company.
Transferring the allowance between spouses and civil partners
Any allowance you do not use can pass to your spouse or civil partner. Together a couple can shelter up to £5 million of qualifying business and agricultural property. The transfer works even where the first death happened before 6 April 2026, and each person’s allowance refreshes every seven years for lifetime gifts.
This single feature changes a lot of planning. Splitting ownership so both partners hold qualifying assets often protects far more than leaving everything in one name.
What changed for AIM and unlisted shares
Shares listed on AIM and other markets that count as “not listed” on a recognised stock exchange used to attract 100% relief. From 6 April 2026 they get 50% relief, and that cut applies from the first pound. These shares do not use up your £2.5 million allowance, but they no longer pass tax free at any level. If you built an AIM portfolio mainly for inheritance tax reasons, the maths has changed and the holding deserves a fresh look.
Business Property Relief rates
| Asset | Relief from 6 April 2026 | Effective IHT position |
|---|---|---|
| Qualifying business or agricultural property within the £2.5m allowance | 100% | No tax |
| Qualifying business or agricultural property above £2.5m | 50% | 20% on the excess |
| Sole trader business or partnership interest within allowance | 100% | No tax |
| Unquoted trading company shares within allowance | 100% | No tax |
| AIM and other “not listed” shares | 50% from first pound | 20% on the value |
| Land, buildings, plant or machinery used by your company or partnership | 50% | 20% on the value |
| Quoted listed company shares giving control | 50% | 20% on the value |
Which businesses and assets qualify?
BPR rewards trading, not investing. The relief applies to a business run for profit, so hobby ventures fall outside it.
The wholly or mainly trading test
The business has to be wholly or mainly trading. HMRC looks at the activity in the round, including turnover, assets, and where the time and effort go. A company that mostly buys and sells goods or provides services qualifies. A company that mostly holds investments does not.
Businesses that do not qualify
The relief shuts out companies that deal mainly in shares or securities, deal in land or buildings, or exist wholly or mainly to make or hold investments. That last point catches most property letting businesses, which is why landlords rarely get BPR on a rental portfolio.
The binding contract for sale trap
If you have already agreed to sell the business under a binding contract when the transfer happens, HMRC can refuse the relief, because you are effectively passing on cash, not a business. Cross option agreements between shareholders need careful drafting for the same reason. Get the wording checked before you sign anything.
Business Property Relief conditions
Qualifying for the relief is not only about the type of business. You also have to meet an ownership test.
The two year ownership rule and its exceptions
You must have owned the asset for at least two years before the transfer, and the business must have been trading throughout. The clock can run differently in a few cases:
- Where one qualifying transfer follows another within two years.
- Where you inherited the property on someone’s death.
- Where the asset replaced other business property you owned.
- Where the asset passed from a spouse or civil partner, in which case both ownership periods count together, however long the marriage lasted.
Voting control matters too. For some assets, such as loan notes or debentures, you need voting rights in the company to claim.
Worked examples
Numbers make this clearer than rules do. Each example assumes the owner has used their ordinary nil rate band elsewhere, so we can isolate the effect of BPR.
A £2 million trading company passed to children
Aisha owns a trading company worth £2 million and leaves it to her children. The whole £2 million sits inside her £2.5 million allowance, so it passes at 100% relief. Inheritance tax on the business: nil. Most owners land here.
A £4 million company, single owner versus a couple
Tom owns a £4 million trading company in his sole name. His £2.5 million allowance covers the first £2.5 million at 100%. The remaining £1.5 million gets 50% relief, so £750,000 stays taxable. At 40%, that is a £300,000 inheritance tax bill.
Now picture Tom and his wife each holding £2 million of the company. Their two allowances shelter up to £5 million combined, so the full £4 million passes with no inheritance tax. Same business, same value, £300,000 saved by how the shares were held.
A £500,000 AIM portfolio
Priya holds £500,000 of AIM shares she bought for inheritance tax planning. From April 2026 these get 50% relief from the first pound, so £250,000 stays taxable. At 40%, that is a £100,000 bill where there was none before. The AIM holding does not touch her £2.5 million allowance, so it sits on top of any business property she owns.
How BPR works with Agricultural Property Relief and the nil rate bands
Business Property Relief and Agricultural Property Relief now share one £2.5 million allowance. You do not get £2.5 million for each. If a far
These reliefs apply before your personal allowances. The standard nil rate band of £325,000 and the residence nil rate band of up to £175,000 still sit on top, covering other parts of the estate such as the family home. (Confirm the current freeze position before relying on these figures, as the thresholds are set by each Budget.)m holds both farmland and a trading enterprise, the combined qualifying value counts against the same cap.
Paying the tax: the interest free instalment option
Where a bill does land on business or agricultural property, you can now spread it over ten annual instalments with no interest, and the reform widened this option to cover all assets that qualify for BPR or APR. That matters when the value sits in the business rather than in cash, because it gives the family time to fund the tax without a forced sale.
What business owners should do now
A short checklist covers most situations:
- Value the business honestly, including any cash, investments, or surplus property sitting on the balance sheet that could fail the trading test.
- Work out how much of your qualifying value falls above £2.5 million, since that is the part now exposed.
- If you are married or in a civil partnership, review who owns what. Two allowances protect more than one.
- Check that the business clearly meets the “wholly or mainly trading” test, and tidy up any investment activity that muddies it.
- Reassess any AIM holdings bought mainly for the old 100% relief.
- Review wills, shareholder agreements, and letters of wishes so they all point to the same outcome.
- Plan how a future tax bill would be funded, whether through instalments, insurance, or liquidity in the estate.
Do not assume the relief will apply and leave it there. If you bank on BPR and it fails on a technicality, the family faces 40% on value they expected to pass tax free.
Frequently Asked Questions
What is the Business Property Relief limit from April 2026?
Each person has a £2.5 million allowance that covers business and agricultural property combined. Qualifying assets within it pass at 100% relief, so no inheritance tax applies. Value above £2.5 million gets 50% relief, which leaves an effective 20% charge on the excess.
Is the £2.5 million BPR allowance transferable between spouses?
Yes. Any unused allowance passes to your spouse or civil partner, so a couple can shelter up to £5 million of qualifying business and agricultural property. The transfer works even where the first death happened before 6 April 2026.
Do AIM shares still qualify for Business Property Relief?
They qualify, but only at 50% from 6 April 2026, down from 100%. The cut applies from the first pound of value. AIM shares do not use up your £2.5 million allowance, so they sit separately from your other business property.
How long must I own a business to qualify for BPR?
Two years in most cases, with the business trading throughout. Shorter periods can count where you inherited the asset, replaced earlier business property, or received it from a spouse, in which case both ownership periods combine.
What is the effective inheritance tax rate above the BPR cap?
20%. Value above £2.5 million gets 50% relief, so half of it stays exposed to the 40% rate, which produces a 20% effective charge on the excess.
Can I still pass on my family business tax free?
Often, yes. If your qualifying business value sits under £2.5 million, or under £5 million as a couple using both allowances, it can still pass with no inheritance tax. Larger holdings face a partial charge on the amount above the cap.
Does BPR apply to a property letting business?
Rarely. A business that exists wholly or mainly to make or hold investments fails the trading test, and most letting businesses fall into that category. Furnished holiday lets and trading property businesses need a case by case review.
How IBISS & CO helps with BPR and inheritance tax planning
We advise UK business owners and families from our offices in Tooting, Barking, and Wimbledon. Our inheritance tax planning team reviews how much of your business sits above the £2.5 million cap, how to use both spouses’ allowances, and how to fund any charge without selling the business. We also work with family owned businesses and estate and succession clients on the wider plan.
Book a 20 minute BPR review and find out exactly where your estate stands under the 2026 rules.
Muhammad Sufyan Moavia
Muhammad Sufyan Moavia, Chartered Tax Adviser and Fellow Chartered Certified Accountant at IBISS & CO.
He has 15 years experience in accounting and tax, advising individuals and business owners on personal tax, HMRC matters, IHT, CGT and tax planning.
Last review: June 2026
