Business Property Relief Changes
Business Property Relief
The Government announced upcoming modifications to Inheritance Tax (IHT) relief concerning business and agricultural property, the government has proposed for this to be implemented in April 2026. These changes will affect both Business Property Relief (BPR) and Agricultural Property Relief (APR), which are designed to lower IHT on assets inherited after an individual's passing. During the Autumn 2024 Budget, it was revealed that a £1 million limit will be established on the total value of business and agricultural properties qualifying for full relief, representing a significant change in how these assets will be treated for tax purposes.
What is Business Property Relief
BPR is a tax relief in the UK designed to lower the value of business assets when calculating inheritance tax (IHT). This relief primary goal is to promote investment in businesses and ensure a seamless transition of ownership to future generations without imposing heavy tax liabilities. An interest held in a business is considered part of an estate when specific qualifying conditions are met. BPR allows for a 50% or 100% reduction in the value of certain business assets, which can be utilised either during the owner's lifetime or through their will.
It is important to note that the £1 million cap on Business Property Relief (BPR) and Agricultural Property Relief (APR) cannot be transferred between spouses, unlike the Nil Rate Band (NRB) and Residence Nil Rate Band (RNRB). Therefore, it is important for married couples to consider succession planning, whether through lifetime planning or wills, to make sure they are making the most of available reliefs.
What qualifies?
BPR offers a way to lessen your inheritance tax liability and facilitate the transfer of business assets. Here is how it works:
100% BPR applies to:
A business or an interest in a business
Shares in an unlisted company
50% BPR applies to:
Shares that control more than 50% of the voting rights in a listed company
Land, buildings or machinery owned by the deceased and used in a business they controlled or were a partner in
Land, buildings, or machinery used in the business and held in a trust with the right to benefit from it
To qualify for this relief, the deceased must have owned the business or asset for a minimum of two years prior to their passing.
Additionally, the first £1 million of qualifying business or agricultural assets is free from inheritance tax (IHT). Any value above £1 million gets only 50% relief. This can help ensure a smooth transfer of assets with minimal tax implications.
What should you know?
According to proposed rules starting 30th October 2024, new regulations regarding lifetime transfers took effect. If you transfer assets after this date and then pass away before April 2026, these updated rules will apply to those transfers. From April 2026, the complete set of changes will be in place, making it essential to stay updated and plan accordingly.
Who does this effect?
Business Owners:
If you own a business, especially an unlisted company, these changes will directly impact how your business is valued for inheritance tax when you pass it on. The reduced relief could lead to a higher inheritance tax liability on your business assets, so it's important to plan ahead.
Farmers and Agricultural Landowners:
For those owning agricultural land or running a farming business, the changes to AR could reduce the amount of relief available when passing on those assets. Farmers will feel the impact from the new cap on relief and the 50% relief for amounts exceeding £1 million.
Those with Assets in Trusts:
If you have placed business or agricultural assets in a trust, the £1 million combined allowance for BR and AR will apply to the trust’s assets. However, trusts created after 30th October 2024 will not be able to benefit from the multiple £1 million allowances that apply to trusts set up before this date.
Shareholders in Unlisted Companies:
If you hold shares in unlisted companies, including those listed on the Alternative Investment Market (AIM), under proposed changes from April 2026 your shares will only qualify for 50% relief from inheritance tax, down from the 100% relief available now.
Those Planning Lifetime Gifts:
If you are planning to transfer business or agricultural assets to family members or into trusts before April 2026, new anti-forestalling rules are proposed to be brought into law meaning that transfers made after 30th October 2024 will fall under the new relief caps if the donor passes away within 7 years.
These changes could have a significant impact on your inheritance tax planning, so it’s vital to act now and make sure you are prepared.
How can Aston Shaw help?
The upcoming changes, it is crucial to review your business succession plans and optimise your asset arrangement for maximum tax relief. Don’t worry, we are here to assist you. Our team of expert tax specialists are here to support you. Email us at taxadvisory@astonshaw.co.uk, and we can provide personalised advice to help you maximise your tax relief.