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Business Property Relief (BPR) Explained - Inheritance Tax Guide UK

· 37 min

Note: The following scenario is fictional and used for illustration.

James, 58, built a successful manufacturing business over 30 years, now valued at £3.5 million. He assumed 100% Business Property Relief meant his two daughters would inherit the company tax-free when he died. In October 2024, the Autumn Budget shattered that assumption.

Under the new rules starting April 2026, only the first £1 million qualifies for 100% relief. The remaining £2.5 million gets just 50% relief, creating a £500,000 inheritance tax bill (20% of £2.5 million). Without immediate planning, his daughters might need to sell the business to pay HMRC.

James's story is playing out in boardrooms across Britain. According to HMRC, 87% of estates claiming Business Property Relief hold assets under £1 million—they're unaffected. But for the 13% above that threshold, the April 2026 reforms create an urgent planning deadline.

This guide explains exactly which business assets qualify for relief, how the 50% and 100% rates work, what changes in 2026, and how to structure your will to protect your business from inheritance tax.

Table of Contents

What Is Business Property Relief (BPR)?

Business Property Relief (BPR) reduces the value of qualifying business assets by 50% or 100% when calculating inheritance tax on your estate.

Introduced in the 1976 Finance Act and codified in the Inheritance Tax Act 1984 Part V Chapter I, BPR exists to ensure family businesses can pass to the next generation without forced asset sales to pay inheritance tax. The terms "Business Relief (BR)" and "Business Property Relief (BPR)" are identical—legislation uses BPR, while the industry commonly says BR.

BPR applies automatically at death if you meet qualifying conditions. However, your will determines who inherits the relieved assets. Without a will, intestacy rules might give your business to unintended family members.

Emma owns a 60% stake in her family's private engineering firm, valued at £1.8 million. Without BPR, her estate would owe £720,000 in inheritance tax (40% of £1.8 million). With 100% BPR, the entire £1.8 million is exempt, and her son inherits the shares tax-free—provided she's held them for two years and the business qualifies.

Without BPR With 100% BPR
£1.8m business shares £1.8m business shares
£0 exemption £1.8m BPR exemption
£1.8m taxable estate £0 taxable estate
£720,000 IHT due (40%) £0 IHT due

BPR relieved £2.85 billion in estate value in 2021-2022, claimed by 4,350 estates, making it one of the UK's most valuable inheritance tax reliefs.

BPR eliminates or reduces the tax, but your will controls who inherits the business. Without a will, intestacy rules might give your business to unintended beneficiaries who can't or won't run it.

How Much Inheritance Tax Does BPR Save?

The calculation is straightforward: 100% relief means the entire asset value is excluded from your taxable estate (£0 IHT), while 50% relief means half the asset value is taxable (creating a 20% effective IHT rate).

Understanding these numbers helps you plan strategically. BPR can be combined with other inheritance tax reliefs, including the £325,000 nil-rate band and £175,000 residence nil-rate band, to protect even larger estates.

David owns a sole trader plumbing business worth £800,000. He also owns a £400,000 home and £100,000 in savings. His total estate: £1.3 million.

  • Business: £800,000 (100% BPR = £0 taxable)
  • Home: £400,000 (covered by £325k NRB + £75k RNRB = £0 taxable)
  • Savings: £100,000 (£100k RNRB remaining = £0 taxable)
  • Total IHT: £0 (despite £1.3m estate)

Sarah owns land worth £600,000 that she rents to her partnership (qualifies for 50% BPR). She also owns a £300,000 home.

  • Land: £600,000 (50% BPR = £300,000 taxable)
  • Home: £300,000 (covered by £325k NRB + £175k RNRB)
  • Taxable estate: £300,000 − £325,000 NRB = £0
  • Total IHT: £0

From April 2026, James owns £3.5 million in unlisted shares:

  • First £1 million: 100% BPR (£0 taxable)
  • Next £2.5 million: 50% BPR (£1.25m taxable)
  • IHT on £1.25m at 40% = £500,000 IHT bill
Relief Rate Taxable Amount Effective IHT Rate Example
100% BPR 0% of asset value 0% £1m business = £0 tax
50% BPR 50% of asset value 20% (40% × 50%) £1m business = £200k tax
No BPR 100% of asset value 40% £1m business = £400k tax

The median value of assets qualifying for business property relief in 2021-2022 was £200,000, meaning most BPR claims involve relatively modest business assets. However, the relief becomes dramatically valuable for larger estates.

Which Business Assets Qualify for 100% Relief?

Four categories of assets receive 100% BPR: sole trader businesses, partnership interests, unlisted company shares, and controlling shareholdings in certain listed companies (rare).

Understanding these categories is essential for estate planning. Even minority shareholdings in private companies qualify—you don't need control to claim relief.

Sole trader businesses: The entire business qualifies if actively trading, including goodwill, equipment, stock, and intellectual property.

Ahmed runs a graphic design consultancy as a sole trader. His business assets include £80,000 goodwill and client list, £15,000 computer equipment, and £5,000 work-in-progress. Total: £100,000 qualifies for 100% BPR (£0 IHT if he's owned the business for 2+ years).

Partnership interests: Your share of partnership assets qualifies, though personal assets used by the partnership only get 50% (covered in the next section).

Priya owns 40% of an accountancy partnership valued at £2 million total. Her 40% share (£800,000) qualifies for 100% BPR. However, the office building she owns personally and rents to the partnership only gets 50% BPR.

Unlisted company shares: Shares in private limited companies qualify, including both controlling and minority stakes, if the company is trading.

Marcus owns 25% of shares in his family's private manufacturing Ltd company (not listed on any stock exchange). The company is valued at £4 million; his 25% stake is worth £1 million. Despite being a minority shareholder, his shares qualify for 100% BPR because the company is unlisted and trading.

All categories share three critical qualification criteria:

  1. Two-year ownership: You must own assets for 2+ years before death or transfer (exceptions exist—covered in Section 6)
  2. Trading business: The business must be mainly trading, not mainly holding investments (covered in Section 5)
  3. Not bound by sale contract: No binding agreement to sell the asset at death (common pitfall—covered in Section 9)

According to HMRC statistics, unquoted shares accounted for £2.04 billion of the £2.85 billion total BPR claimed in 2021-2022 (71% of all BPR claims), making private company shares the most common form of BPR-qualifying asset.

100% BPR is powerful but conditional—your business must be actively trading, you must have owned it for two years, and you can't have agreed to sell it when you die.

Which Assets Get Only 50% Business Property Relief?

Two main categories receive only 50% BPR: land, buildings, or machinery you own personally but your partnership or controlled company uses, and certain assets over £1 million from April 2026.

The 50% rate still provides substantial tax savings—it creates a 20% effective IHT rate instead of the standard 40%, cutting your tax bill in half.

Assets owned personally, used by business: This category requires the asset to be used "wholly or mainly" (more than 50%) for business purposes.

Sarah owns a £600,000 commercial building personally. She leases it to her law partnership (in which she's a partner) for office space.

  • Sarah's partnership interest: £400,000 (100% BPR)
  • Her building used by partnership: £600,000 (50% BPR)
  • Building: £600,000 × 50% = £300,000 taxable
  • IHT on building: £300,000 × 40% = £120,000 (effective 20% rate)

Tom owns 60% of a construction Ltd company. He personally owns £200,000 in excavators that the company uses daily under a formal loan agreement.

  • His company shares: £1 million (100% BPR)
  • His excavators used by company: £200,000 (50% BPR)
  • Excavators: £200,000 × 50% = £100,000 taxable
  • IHT on excavators: £100,000 × 40% = £40,000

From April 2026, Elena owns £2.5 million in unlisted shares in her tech startup:

  • First £1 million: 100% BPR (£0 taxable)
  • Next £1.5 million: 50% BPR (£750,000 taxable)
  • IHT on £750,000 at 40% = £300,000

Under current rules (before April 2026), Elena would pay £0 IHT on the entire £2.5 million.

Asset Value 50% BPR Exemption Taxable Amount IHT at 40% Effective Rate
£200,000 £100,000 £100,000 £40,000 20%
£500,000 £250,000 £250,000 £100,000 20%
£1,000,000 £500,000 £500,000 £200,000 20%

50% BPR still saves you 50% of the inheritance tax you'd otherwise pay. Without BPR, £1 million costs £400,000 in tax. With 50% BPR, it's £200,000—still a substantial saving.

If you own assets personally that your business uses, consider transferring them into the business (if commercially viable) to gain 100% BPR instead of 50%. Consult an accountant on tax and legal implications before restructuring.

Businesses That Don't Qualify: The "Wholly or Mainly" Test

The critical exclusion: businesses consisting mainly of dealing in securities, land, or buildings, or holding investments don't qualify for BPR.

Section 105(3) of the Inheritance Tax Act 1984 states: "A business or interest in a business, or shares in or securities of a company, are not relevant business property if the business consists wholly or mainly of one or more of the following, that is to say, dealing in securities, stocks or shares, land or buildings or making or holding investments."

HMRC interprets "mainly" as "more than 50%" of business activity. This strict test disqualifies many property businesses and investment companies.

Excluded business types:

  • Buy-to-let property portfolios (passive rental income = investment)
  • Furnished holiday lettings (usually investment unless substantial hotel-like services)
  • Property development (dealing in land/buildings)
  • Stock trading or investment management companies
  • Holding companies (unless mainly provide services to trading subsidiaries)

David owns 12 residential buy-to-let properties generating £120,000 annual rental income. He employs a property manager who spends 10 hours per month on maintenance.

HMRC view: Passive rental income equals investment activity equals NO BPR.

David's view: "It's a business—I manage tenants and properties!"

Reality: Unless David provides substantial additional services (daily housekeeping, meals, concierge—essentially running a hotel), HMRC will deny BPR. Standard landlord activities (repairs, tenant management) aren't enough.

Sarah owns 3 Lake District cottages let as furnished holiday accommodation, generating £80,000 per year. She provides welcome packs, fresh linens, and cleaning between guests.

HMRC guidance states that furnished holiday lettings "will in general not qualify for BR." In the Graham v HMRC case, a holiday let business did qualify, but the tribunal called it "exceptional"—owners spent substantial time on-site providing hotel-like amenities (toiletries, breakfast hampers, concierge services, daily housekeeping during stays).

Sarah's situation: Standard welcome pack and cleaning likely fails the BPR test.

Borderline cases: TechCo Ltd is a software company (£2 million annual trading revenue, 15 staff) that also holds £800,000 in a commercial investment property it rents out (£60,000 per year rental income).

Applying the five-factor test from the Farmer v HMRC precedent:

  1. Context: Mainly software development
  2. Capital: £3m in software business, £800k in investment property (79% trading)
  3. Time: 15 employees full-time on software, 2 hours per month managing property (99.5% trading)
  4. Turnover: £2m trading, £60k investment (97% trading)
  5. Profit: £400k trading profit, £50k property profit (89% trading)

Conclusion: Likely qualifies for BPR—mainly trading (more than 50% on all factors). But close cases require professional advice.

If your business is borderline (significant investment income alongside trading), HMRC may challenge your BPR claim during probate. Maintain contemporaneous evidence: board minutes documenting trading focus, employee timesheets, financial accounts showing revenue split. Consider restructuring (hive down investments into separate non-BPR entity) before death if commercially viable.

The "wholly or mainly" test is strictly enforced. If more than half your business activity (measured by capital, time, turnover, or profit) involves holding investments or dealing in property, you won't get BPR—no matter how active you feel.

The Two-Year Ownership Rule (And Exceptions)

You must own qualifying business assets for at least two years immediately before death or transfer to claim BPR.

This rule prevents deathbed tax planning—buying BPR-qualifying shares just before death doesn't work. The clock starts from your acquisition date (share purchase date, business commencement date, etc.).

However, five key exceptions can combine ownership periods or allow relief even when you haven't personally owned assets for the full two years.

Exception 1: Spousal inheritance aggregation

If you inherit business property from your spouse or civil partner on their death, their ownership period counts toward your two years.

Husband owned shares for 18 months, dies, wife inherits. Six months later, wife dies. Wife's estate gets BPR because combined ownership (18 + 6 months) exceeds 2 years.

Important: This only applies to inheritance on death, NOT lifetime spousal gifts (lifetime gifts reset the clock).

Exception 2: Replacement property relief

If you sell qualifying business property and buy replacement qualifying property within 3 years using the sale proceeds, ownership periods combine.

Sarah owned a sole trader business for 18 months, then incorporated it into Sarah Ltd (shares). She dies 9 months later. BPR available because her combined ownership of qualifying business property (18 months partnership + 9 months shares) totals 27 months (over 2 years).

Exception 3: Partnership to company conversion

If you convert your partnership into a limited company (incorporation), the period you owned the partnership counts toward the 2-year requirement for the company shares. Continuity of business ownership is recognized.

Marcus bought 40% of unlisted shares in FamilyCo Ltd on 1 June 2022. He dies on 15 August 2024 (2 years, 2.5 months later). His shares qualify for 100% BPR because he's owned them for more than 2 years.

Elena bought AIM shares on 1 January 2024. She dies on 30 November 2025 (1 year, 11 months later). Despite the shares being BPR-qualifying assets, Elena's estate gets NO BPR because she didn't own them for the full 2 years. Her estate pays full 40% IHT on the shares' value.

Husband owned 50% of a family business from 2020. He died in January 2024, leaving his shares to his wife. Wife dies in March 2025 (14 months after inheriting). Wife's estate gets 100% BPR on the shares because the combined ownership period (husband's 4 years + wife's 14 months) far exceeds 2 years.

Husband gifts shares to wife during his lifetime (not on death). Wife owns them for 18 months, then dies. NO BPR available—lifetime spousal gifts don't allow ownership aggregation. Wife needed to own the shares for a full 2 years herself.

If you're buying BPR-qualifying investments (like AIM shares) specifically for IHT planning, remember the 2-year clock. Die within 2 years and the relief is worthless. Married couples benefit from ownership aggregation on inherited assets—but only if the first spouse dies, not for lifetime gifts.

What Changes to BPR in April 2026?

The Autumn Budget 2024 announced the most significant reforms to Business Property Relief in 40 years, taking effect 6 April 2026.

These changes fundamentally reshape estate planning for business owners. Understanding the new rules now gives you 15 months to restructure before the deadline.

Reform 1: £1 million cap on 100% relief

Current rule: Unlimited 100% BPR on qualifying business and agricultural property.

New rule from 6 April 2026: 100% relief capped at £1 million per person (combined APR and BPR).

Excess treatment: Assets above £1 million get only 50% relief (20% effective IHT rate).

Couples' benefit: Each spouse or civil partner gets their own £1 million allowance (£2 million combined).

Unused allowance transfer: Surviving spouse inherits unused portion of deceased spouse's £1 million allowance (like NRB/RNRB).

Indexation: The £1 million allowance will be indexed to CPI inflation from 2026, but remains fixed until tax year 2029-2030.

Reform 2: AIM shares relief rate cut

Current rule: AIM shares (and other "not listed" shares on recognised exchanges) get 100% BPR.

New rule from 6 April 2026: ALL AIM and "not listed" shares drop to 50% BPR regardless of value.

Private company shares unchanged: Unlisted private limited company shares still get 100% relief (up to £1 million), then 50% above.

Rationale: Government views AIM shares as liquid investments, not illiquid family businesses.

Reform 3: 10-year interest-free instalments

Benefit: Estates can pay IHT on BPR-qualifying assets in 10 equal annual instalments, interest-free.

Applies to: All property eligible for APR or BPR (even if relief is only 50%).

Example: £500,000 IHT bill on business assets equals £50,000 per year for 10 years, no interest.

Reform 4: Transitional rules for lifetime gifts

Gifts made before 30 October 2024: Old rules apply (unlimited 100% BPR if donor survives 7 years).

Gifts made 30 October 2024 - 5 April 2026: If donor dies on or after 6 April 2026, new rules apply (£1 million cap).

Trap: Lifetime gifts made in this "transition window" lose unlimited relief if donor dies after April 2026.

Reform 5: Trust restrictions

Multiple trusts: If settlor creates multiple trusts on or after 30 October 2024, the £1 million allowance is divided between them.

Prevents: Allowance multiplication via multiple trust structures.

Pre-30 October 2024 trusts: Grandfathered—each trust gets its own £1 million allowance.

Impact statistics:

Around 2,000 estates across the UK expected to pay more IHT in 2026-2027 due to BPR reforms (down from initial forecast). Of these, 1,025 estates claiming only BPR (not APR) expected to pay more IHT. Around 700 of these estates hold only AIM shares or 'not listed' shares.

Sarah owns £800,000 in unlisted shares. Under current rules and 2026 rules, she gets 100% BPR (£0 IHT). The reforms don't affect her because she's under the £1 million threshold.

James owns £3.5 million in unlisted shares in his manufacturing business.

Current rules (until 5 April 2026): 100% BPR on entire £3.5m equals £0 IHT.

New rules (from 6 April 2026):

  • First £1 million: 100% BPR (£0 taxable)
  • Next £2.5 million: 50% BPR (£1.25m taxable)
  • IHT: £1.25m × 40% equals £500,000

Impact: £500,000 tax bill that didn't exist before.

Elena owns £600,000 in AIM shares qualifying for BPR.

Current rules: 100% BPR equals £0 IHT.

New rules (from 6 April 2026): 50% BPR only

  • £600,000 × 50% equals £300,000 taxable
  • IHT: £300,000 × 40% equals £120,000

Impact: Even though she's under £1 million, AIM shares lose 100% relief entirely.

You have until April 2026 to review your business asset values, consider lifetime gifting strategies (survive 7 years to use current unlimited relief), restructure AIM portfolios if they're a core part of IHT planning, update your will to coordinate with the new £1 million allowance, and consult a tax adviser on whether accelerating gifts before April 2026 makes sense.

How BPR Affects AIM Shares and Unlisted Companies

AIM (Alternative Investment Market) shares and unlisted private company shares both currently qualify for BPR, but the April 2026 reforms treat them very differently.

Understanding this distinction is critical for investment and estate planning decisions over the next 15 months.

AIM shares explained: The Alternative Investment Market is the London Stock Exchange's market for smaller, growing companies. AIM shares are "unlisted" for BPR purposes (even though they trade on a recognized exchange).

Current BPR treatment: 100% relief if qualifying trading company, owned 2+ years.

Why popular for IHT planning: Can be held in ISAs (tax-free growth plus IHT relief) and are liquid (can sell anytime, unlike private shares).

From April 2026: ALL AIM shares drop to 50% BPR only (20% effective IHT rate).

Private unlisted company shares explained: Shares in private limited companies not listed on any stock exchange (your family business Ltd).

Current BPR treatment: 100% relief if qualifying trading company, owned 2+ years.

From April 2026: First £1 million at 100%, excess at 50% (better than AIM shares).

Advantage: More generous treatment under 2026 rules than AIM shares (£1 million threshold versus immediate 50% for AIM).

Why the difference?

Government rationale: AIM shares are liquid investments (can sell easily), whereas private company shares are illiquid (hard to sell, genuinely passed down in families).

Policy goal: Focus relief on genuine family business succession, not investment portfolios.

Around 40% of all estates claiming business property relief claimed it on AIM shares (at least partially) in 2021 to 2022. Around 20% of the value of all qualifying investments for BPR were AIM investments. HMRC estimates the tax cost relating to AIM shares was £185 million in 2021-2022.

Marcus holds £800,000 in a diversified AIM share portfolio (10 different qualifying companies), owned for 5 years, held in an ISA.

Current rules (to 5 April 2026): 100% BPR equals £0 IHT.

New rules (from 6 April 2026): 50% BPR only

  • £800,000 × 50% equals £400,000 taxable
  • IHT: £400,000 × 40% equals £160,000

Still better than no BPR: Without BPR, IHT would be £320,000. With 50% BPR: £160,000 (50% saving).

Elena owns 30% of her family's private IT consulting Ltd company, valued at £2 million total (her 30% equals £600,000).

Current rules: 100% BPR equals £0 IHT.

New rules (from 6 April 2026): Still 100% BPR (under £1 million threshold) equals £0 IHT.

Elena is unaffected because her shareholding is under £1 million.

David owns £900,000 in private company shares (unlisted) and £600,000 in AIM shares. Total: £1.5 million in BPR-qualifying assets.

2026 treatment:

  • Private shares: £900,000 (100% BPR, uses £900k of his £1m allowance)
  • Remaining allowance: £100,000
  • AIM shares: First £100,000 at 100% BPR (uses remaining allowance), next £500,000 at 50% BPR
  • Taxable amount: Private shares £0, AIM shares £500,000 × 50% equals £250,000
  • Total IHT: £250,000 × 40% equals £100,000
Asset Type Value 100% Relief On 50% Relief On Taxable IHT at 40%
Private Ltd shares £1.5m First £1m Next £500k £250k £100,000
AIM shares £1.5m £0 (no threshold) All £1.5m £750k £300,000

If you hold AIM shares primarily for BPR (not because you believe in the companies), reconsider your strategy before April 2026. The relief dropping from 100% to 50% significantly reduces the IHT benefit. However, 50% relief (20% effective tax) is still better than 0% relief (40% tax) on standard investments.

Common BPR Mistakes That Void Your Relief

Five common errors cause HMRC to deny BPR claims entirely, even when the business otherwise qualifies.

Understanding these pitfalls helps you protect your relief. Most are preventable with proper documentation and legal structuring.

Mistake 1: Binding contracts for sale on death

If there's a legally binding agreement requiring your shares or business to be sold when you die, BPR is denied entirely—even if the business otherwise qualifies.

Common scenario: Three business partners each own 33% of a company. They sign a shareholders' agreement stating: "On death of any shareholder, the deceased's estate MUST sell their shares to the surviving shareholders at fair market value (funded by life insurance)."

Impact: This is a binding contract for sale. When Partner A dies, their shares get NO BPR, despite being unlisted trading company shares. IHT result: Full 40% tax on the share value.

Solution: Rewrite the agreement to use mutual options (not obligations). Right wording: "On death, the deceased's estate has the OPTION to sell shares to surviving shareholders, who have the OPTION to buy." Effect: No binding contract equals BPR preserved.

Mistake 2: Excess cash and "excepted assets"

If your business holds surplus cash (beyond reasonable trading needs), HMRC treats it as an "excepted asset" that doesn't qualify for BPR, reducing your relief.

HMRC's position: Cash is only BPR-qualifying if held for an identifiable future business purpose. Holding cash as a "rainy day buffer" or "in case of downturn" is NOT accepted by HMRC—they'll treat it as excepted assets.

FamilyCo Ltd is valued at £2 million: £1.5 million trading assets (stock, equipment, IP, receivables) and £500,000 cash in bank account (no documented purpose).

HMRC assessment:

  • Trading assets: £1.5m qualifies for BPR
  • Cash: £500,000 equals excepted asset (NO BPR)
  • Shareholder's BPR: Only £1.5m qualifies (not full £2m)
  • IHT impact: 40% tax on £500,000 equals £200,000 unexpected tax bill

How to protect cash reserves: Hold board meetings and minute specific future uses for cash (e.g., "£200k reserved for new factory equipment in Q3 2026, £150k for planned acquisition, £100k for working capital expansion"). Keep quotes, feasibility studies, purchase orders showing cash is earmarked for business investment. Don't hold £2 million cash for a business generating £100k per year revenue—HMRC will challenge it.

Mistake 3: Investment activities exceed 50% (fails "wholly or mainly" test)

If your business mainly (more than 50%) consists of holding investments or dealing in property or securities, NO BPR.

Sarah owns a company that owns 8 residential buy-to-let properties (£2 million value, £120,000 annual rent) and employs a property manager 10 hours per month.

HMRC decision: Investment business (rental income) equals NO BPR.

Sarah's surprise: "But I run it like a business—I have an employee!"

Reality: Passive rental income equals investment, not trading. Sarah's company shares get NO BPR. IHT on £2m equals £800,000.

Mistake 4: Dying within two years of acquiring assets

Buy qualifying shares or business, die before owning them for 2 full years equals NO BPR (even if they'd otherwise qualify).

Tom, aged 72 with £2 million in savings, buys £1 million of AIM shares in January 2024 specifically for BPR planning. He dies in November 2025 (22 months later).

Ownership period: 1 year, 10 months. BPR available: £0 (failed 2-year rule). IHT on £1m AIM shares: £400,000.

Result: Tom's plan backfired—he'd have been better keeping the cash in bonds (at least earned interest).

Mistake 5: Company in liquidation or winding-up

If your company is in formal liquidation or winding-up proceedings when you die, shares lose BPR (unless it's a reconstruction or amalgamation where business continues).

David owns 100% of a company entering voluntary liquidation (business is closing, assets being sold off). David dies during the liquidation process. Share value: £600,000 (based on liquidation proceeds). BPR available: £0 (company in liquidation). IHT: £600,000 × 40% equals £240,000.

Annual BPR health check: Review whether your business still qualifies (trading ratio, cash levels, ownership duration). Use options in shareholders' agreements, not binding sale obligations. Document purpose of cash reserves quarterly. Start BPR strategies well before age 70 (account for 2-year rule plus 7-year PET rule for gifts). Consult a tax adviser before death if business structure changed, you're considering liquidation, or investment income grew significantly.

How to Include Business Assets in Your Will

Business owners need a will even with BPR. The relief eliminates or reduces tax, but your will controls who inherits the business.

Without a will, intestacy rules might give your business to people who can't run it or who you didn't intend to inherit it.

Why business owners need a will (even with BPR):

BPR eliminates tax, not intestacy risk. BPR reduces or eliminates IHT on business assets, but if you die without a will, intestacy rules decide who inherits the business. Intestacy may give your business to people who can't run it (or who you didn't intend).

Business succession requires specificity. You might want to leave business to children but personal assets to spouse, or leave different percentages to different children based on involvement in business. A will gives you control; intestacy doesn't.

Avoiding family disputes. Unequal business inheritance (e.g., operational son gets shares, non-operational daughter gets property) needs clear documentation. Your will can include explanation or reasons to reduce conflict.

How to specify business assets in your will:

Option 1: Specific gift of shares or business

"I give my 60% shareholding in FamilyCo Limited (company number 12345678) to my daughter Sarah Thompson absolutely."

Advantage: Crystal clear what Sarah inherits.

Disadvantage: If you sell or transfer shares before death, gift fails (Sarah gets nothing).

Option 2: General gift of business interests

"I give all my shares, partnership interests, and business assets to my children in equal shares."

Advantage: Covers any business ownership you have at death.

Disadvantage: Less specific, may require valuation or division.

Option 3: Specific business, residue everything else

"I give my entire interest in FamilyCo Limited to my son James Thompson. I give the residue of my estate to my wife Mary Thompson."

Advantage: Business goes to intended successor, spouse inherits everything else.

Disadvantage: May create inequality requiring balancing gifts.

The BPR and spousal exemption strategy:

Strategy conflict: Spousal exemption (leaving everything to spouse equals £0 IHT on first death but uses no allowances) versus BPR strategy (leaving BPR-qualifying assets to children equals uses BPR relief on first death, preserves spouse's £1m allowance for second death).

David owns £1.2 million in qualifying unlisted shares (his only asset). He dies in 2027 (after April 2026 reforms) leaving everything to his wife.

IHT on David's death: £0 (spousal exemption).

Wife's position: Now owns £1.2m shares plus her own assets (say £800k).

Wife's death: Total £2m estate. Shares: First £1m at 100% BPR, next £200k at 50% BPR (£100k taxable). Her assets: £800k (covered by NRB/RNRB). IHT: Minimal.

But what if David left shares to children instead? David's death: Shares: First £1m at 100% BPR, next £200k at 50% BPR (£100k taxable). IHT: £100k × 40% equals £40,000 (payable by children from their inheritance). Wife's death later: Only her £800k assets (covered by allowances). IHT: £0.

What NOT to include in your will:

Avoid binding sale obligations:

Wrong: "My executors MUST sell my shares in FamilyCo Limited within 12 months of my death and distribute proceeds to my children."

Problem: "MUST sell" could be interpreted as binding contract for sale (voids BPR).

Right: "My executors have the POWER to sell my shares in FamilyCo Limited if they determine it is in the best interests of my beneficiaries, and to distribute proceeds to my children."

Effect: Discretionary power, not binding obligation (preserves BPR).

Example will clause for business owners:

"I give my entire shareholding in FamilyCo Limited (company number 12345678) to my Trustees to hold on trust for my children who survive me and reach age 25 in equal shares absolutely. This gift is subject to the terms of any shareholders' agreement in force at the date of my death. My Trustees shall have power (but not obligation) to sell the shares if they consider it in the beneficiaries' best interests, consulting with the surviving shareholders and my children before doing so."

Effect: Clear succession, preserves BPR (no binding sale), allows flexibility, involves children in decisions.

BPR saves inheritance tax—your will decides who inherits the business. Without a will, your £2 million business might pass tax-free but end up with the wrong family members under intestacy rules.

Business Property Relief Estate Planning Strategies

Five sophisticated planning strategies help business owners maximize BPR benefits under the April 2026 reforms.

These strategies require careful implementation and, in some cases, professional advice. The key is acting now while you still have flexibility.

Strategy 1: Lifetime gifts before April 2026 (7-year PETs)

The opportunity: Gifts made before 6 April 2026 qualify for unlimited 100% BPR under current rules. If you survive 7 years after the gift, it's outside your estate entirely (no IHT). If you die within 7 years, BPR may still apply (but only if asset still qualifies and recipient still owns it).

Marcus, 62, owns £3 million in unlisted shares. In January 2025, he gifts £2 million worth to his daughter (keeps £1 million for himself). Gift date: January 2025 (before April 2026).

If he survives to January 2032 (7 years): £2m gift completely outside estate (£0 IHT ever). If he dies in 2027: Gift gets £1m at 100% BPR, £1m at 50% BPR under new rules (assuming daughter still owns shares and they still qualify). Advantage: Starts 7-year clock NOW while he's healthy.

Risks of pre-2026 gifting: Must give up control or ownership (genuine gift, not sham). If you need business income, gifting shares may cut off dividends. Recipient could sell or lose shares (BPR lost). Capital Gains Tax may apply on gift (consult accountant).

Who should consider this: Business owners over 60 with significant business assets (more than £1 million) in good health, willing to transfer ownership to next generation now.

Strategy 2: Maximizing couples' combined £2 million allowance (from 2026)

The opportunity: Each spouse gets their own £1 million BPR allowance from April 2026. Couples can strategically allocate assets to use both allowances.

Husband owns £2.5 million in business shares. Wife owns no business assets.

Current position (2026+): Husband dies first: £1m at 100% BPR, £1.5m at 50% BPR. Taxable: £750,000 (50% of £1.5m). IHT: £300,000. Wife's £1m allowance unused (wasted if husband's shares pass to children, not her).

Optimized position: Action (before husband's death): Gift or transfer £1 million of shares to wife. New position: Husband owns £1.5 million shares, wife owns £1 million shares.

Husband dies first: His £1.5m: £1m at 100% BPR, £500k at 50% BPR. Taxable: £250,000. IHT to children: £100,000.

Wife dies later: Her £1m shares: 100% BPR (within her allowance). IHT: £0.

Total IHT (both deaths): £100,000 (versus £300,000 without reallocation equals £200,000 saving).

Strategy 3: Trust strategies (use with caution post-2026)

Current trust benefits: Business assets in trust qualify for BPR (currently unlimited 100%). Protects assets from beneficiaries' creditors or divorces. Allows controlled succession (trustees manage until beneficiaries mature).

2026 trust restrictions: Trusts get their own £1 million BPR allowance. Multiple trust trap: If settlor creates multiple trusts on or after 30 October 2024, £1 million allowance is divided between them. 10-year periodic charges: Trusts pay IHT every 10 years on value above £1 million (only 50% BPR available equals higher charges).

Trust strategy conclusion: From 2026, trusts become less attractive for BPR purposes unless you have non-tax reasons (asset protection, beneficiary control). Direct gifts to children may be more tax-efficient.

Strategy 4: Restructuring investment-heavy businesses

The problem: Businesses failing "wholly or mainly" trading test lose ALL BPR (not just partial).

Solution: Hive down investment assets. TechCo Ltd owns £3 million trading business (software development) and £1 million investment property (rented out).

Current risk: Investment property equals 25% of assets. If HMRC argues "mainly" applies to capital (not just income, time, turnover), business might fail BPR test.

Restructuring: Transfer investment property to new separate HoldCo Ltd. TechCo Ltd becomes pure trading company (£3m, 100% trading). HoldCo Ltd is investment company (£1m, no BPR).

Result: TechCo shares qualify for BPR (first £1m at 100%, next £2m at 50% from 2026). HoldCo shares: No BPR (full 40% IHT). Advantage: Protects £3m trading business from BPR disqualification due to investment assets.

Strategy 5: Coordinating BPR with other IHT reliefs

Reliefs that stack with BPR: Nil-Rate Band (£325,000) for non-BPR assets, Residence Nil-Rate Band (£175,000) for family home, Spouse Exemption (unlimited IHT-free transfers), Charitable gifts (IHT-free AND reduce estate value).

Estate: £2.5 million total. £1.5m business shares (BPR-qualifying), £700k family home, £300k savings and investments.

Will strategy (from 2026): Business shares: £1m to children (100% BPR), £500k to spouse (defers tax). Family home: To spouse (spousal exemption plus preserves RNRB for second death). Savings: £100k to charity, £200k to children.

First death (husband): £1m shares to children: £0 IHT (100% BPR). £500k shares to wife: £0 IHT (spousal exemption). £700k home to wife: £0 IHT (spousal exemption). £100k to charity: £0 IHT (charitable exemption). £200k to children: Covered by £325k NRB. Total IHT: £0.

When to get professional advice:

You need a tax adviser or estate planner if business assets exceed £1 million (affected by 2026 cap), you hold AIM shares as core IHT strategy (relief dropping to 50%), your business has significant investment income or assets (BPR qualification risk), you're considering lifetime gifts (need CGT, IHT, and BPR analysis), you have existing trusts with business assets (2026 rule changes), you're in poor health and under 2-year ownership period (timing critical), or you have a complex family situation (second marriage, estranged children, business partners).

The April 2026 BPR reforms are the most significant change to business IHT planning in 40 years. If you own business assets worth over £1 million, you have 15 months to optimize your structure. After April 2026, your planning options narrow significantly—act now while you still have flexibility.

Frequently Asked Questions

Q: What is Business Property Relief and how does it reduce inheritance tax?

A: Business Property Relief (BPR) is a UK inheritance tax relief that reduces the value of qualifying business assets by either 50% or 100% when calculating inheritance tax. For example, if you own £2 million in qualifying unlisted shares with 100% BPR, the entire value is exempt from IHT, potentially saving £800,000 in tax at the 40% rate.

Q: Which businesses qualify for 100% Business Property Relief?

A: 100% BPR applies to sole trader businesses, partnership interests, and unlisted trading company shares (including private limited companies). The business must be actively trading, not mainly holding investments or dealing in land, property, or securities. You must have owned the business assets for at least two years before death or transfer.

Q: What are the BPR changes coming in April 2026?

A: From 6 April 2026, 100% BPR will be capped at £1 million per person for combined agricultural and business property. Assets exceeding £1 million will receive only 50% relief, creating an effective 20% IHT rate on the excess. AIM shares will also drop from 100% to 50% relief regardless of value.

Q: Do AIM shares qualify for Business Property Relief after 2026?

A: Yes, but the relief rate changes. Currently, qualifying AIM shares receive 100% BPR. From 6 April 2026, all AIM shares (and other "not listed" shares on recognised exchanges) will only qualify for 50% relief, creating a 20% effective IHT rate instead of the standard 40%.

Q: Does my property rental business qualify for BPR?

A: Generally no. HMRC considers most property letting businesses (including furnished holiday lets) as passive investment activities, which don't qualify for BPR. Exception: If you provide substantial hotel-like services (daily housekeeping, meals, concierge services), you might qualify, but HMRC challenges these claims frequently.

Q: What is the two-year ownership rule for Business Property Relief?

A: You must own qualifying business assets for at least two years immediately before death or transfer to claim BPR. Exception: If you inherit business property from your spouse or replace one qualifying asset with another, the ownership periods can be combined to meet the two-year requirement.

Q: Can I hold Business Property Relief assets in a trust?

A: Yes, but with restrictions from 2026. Trusts will face 10-year periodic charges on qualifying business property above £1 million (50% relief only). If you create multiple trusts after 30 October 2024, the £1 million allowance must be divided between them, preventing allowance multiplication.

Q: What happens to BPR if my business holds excess cash?

A: HMRC treats surplus cash as "excepted assets" that don't qualify for BPR, reducing your relief. To protect your claim, maintain board minutes documenting that cash reserves are held for specific future business purposes (equipment purchases, expansion plans, working capital needs), not as general savings.

Q: How does BPR interact with my will and estate planning?

A: BPR reduces the taxable value of business assets in your estate automatically if you meet qualifying conditions at death. However, your will determines who inherits these assets. Strategic planning includes: leaving BPR-qualifying assets to children (not spouse) to use the relief, avoiding binding sale agreements that void BPR, and coordinating with the £1 million allowance from 2026.

Q: What is the difference between 50% and 100% Business Property Relief?

A: 100% BPR applies to: sole trader businesses, partnership interests, and unlisted company shares (complete IHT exemption). 50% BPR applies to: land, buildings, or machinery owned personally but used by your partnership or controlled company, and certain qualifying assets over £1 million from 2026 (creating 20% effective tax rate).

Conclusion

Business Property Relief is one of the UK's most valuable inheritance tax reliefs, but the April 2026 reforms fundamentally change how it works for estates over £1 million.

Key takeaways:

  • 100% BPR eliminates inheritance tax on qualifying business assets, but only if you meet strict criteria (trading business, two-year ownership, no binding sale contracts)
  • From April 2026, the £1 million cap means larger estates will pay 20% effective IHT on business assets above the threshold (50% relief instead of 100%)
  • AIM shares lose their 100% relief entirely from 2026, dropping to 50% regardless of value
  • Property rental businesses and investment companies generally don't qualify for BPR under HMRC's "wholly or mainly" trading test
  • Your will determines who inherits BPR-qualifying assets, even though the relief applies automatically—business owners need properly structured wills to maximize tax savings

You built your business over decades. Protecting it for your family requires both tax planning (BPR) and legal planning (your will). The reforms give you 15 months to act—use this time to review your structure, consider lifetime gifts if appropriate, and ensure your will coordinates with your BPR strategy.

Need Help with Your Will?

Understanding Business Property Relief is essential for protecting your business from inheritance tax, but relief is only valuable if your will ensures the right people inherit your business assets.

Create your will with confidence using WUHLD's guided platform. For just £99.99, you'll get your complete will (legally binding when properly executed and witnessed) plus three expert guides. Preview your will free before paying anything—no credit card required.

Legal Disclaimer: This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.

Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.

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