More changes to Business Relief and Agricultural Relief

Following the announcement in the October 2024 Budget that, from 6 April 2026, 100% business relief (BPR) and/ or agricultural relief (APR) would be limited to the first £1 million of qualifying assets with any excess receiving 50% relief, the government has recently announced some relaxation to these new rules.

Firstly, the November 2025 Budget announced that, on a person’s death, any of their unused £1 million 100% BPR and/ or APR allowance can be transferred to a surviving spouse or civil partner. This transferable allowance is expected to work in a similar way to the transferable residence nil rate band (RNRB).

Secondly, in a surprise announcement on 23 December 2025, the government stated that the 100% allowance would increase from £1 million to £2.5 million of qualifying business and/ or agricultural assets. This means that, if an individual died not fully using their 100% allowance, his or her surviving spouse would be entitled to a 100% allowance of up to £5 million on their subsequent death.

As well as family trading companies, these new rules extend to investments in unquoted (“business relief”) trading companies offered by venture capital firms.

What these changes mean in terms of planning for business owners

Whilst the text below concentrates on qualifying business assets, similar principles apply to qualifying agricultural assets.

The effect of these changes on those who own “family” business assets that they wish to pass on to, say, the next generation will depend on:

• The value of the business assets;
• Whether they are married or have a civil partner;
• Whether they wish to pass the assets to other family members; and
• Whether they have already made gifts of business and/ or agricultural assets, possibly as a result of the Autumn 2024 Budget announcement.

The following is a general overview on the options available and assumes that all business assets qualify for 100% business relief (i.e. there are no restrictions for investment assets).

(a) Owners of qualifying business assets worth up to the 100% allowance

Where business assets are worth less than £5 million and the business owner is married or has a civil partner, the transferable allowance means that, with planning, no inheritance tax needs be paid on those assets on deaths occurring after 5 April 2026. So, for example, if qualifying business assets worth up to £5 million were split between husband and wife on a 50/50 basis and each left their interest to, say, their children on death, no inheritance tax liability should arise.

Alternatively, a business owner dying as the survivor of a married couple, where the first to die had not used any of their 100% allowance, would have a £5 million 100% allowance from 6 April 2026. So, a married couple could each leave their estate to the survivor on the first death enabling the survivor to use up to the full £5 million 100% allowance on their subsequent death.

An additional benefit of leaving assets on death is that no capital gains tax (CGT) liability then arises and asset values are rebased for CGT.

(b) Owners of qualifying business assets worth more than the 100% allowance

Inheritance tax can still apply to qualifying business assets worth more than the available 100% allowance at an effective rate of 20% on the excess over the available 100% allowance.

While business assets may currently be worth less than the 100% allowance, some consideration may be needed to the future potential growth of the assets as they may grow to be worth more than the available 100% allowance.

Owners who feel that inheritance tax might apply to their business assets could consider gifting some or all of those assets. On surviving the gift by 7 years, it would then fall outside their estate for inheritance tax purposes. Of course, Capital Gains Tax (CGT) on such gifts would need to be considered but CGT holdover relief could normally be claimed.

Where the gift is outright, it will be a potentially exempt transfer (PET). If made to a discretionary or interest in possession trust, it would be a chargeable lifetime transfer (CLT) but no immediate inheritance tax liability would arise if the gift was made before 6 April 2026 or, if made after that, does not exceed the sum of the donor’s available 100% allowance and nil rate band.

Life assurance in trust can cover any potential inheritance tax liabilities.

(c) Those who have made recent gifts of business assets

Following the Autumn 2024 Budget, some business owners have taken action to transfer some or all of their business assets to their children, either directly or via discretionary trusts. Unlimited transfers can be made before 6 April 2026 without incurring an inheritance tax liability, provided the donor survives the gift by 7 years.

If the donor died after 5 April 2026 but within 7 years of the gift, inheritance tax on the gift would be tested under the new rules with a restriction on the amount of 100% business relief.

However, a donor who has made no lifetime gifts in the previous 7 years could gift business assets of up to £3,150,000 without incurring an inheritance tax liability. This figure is made up as follows:

Those who have already made gifts will now find that the potential inheritance tax liability should they die within 7 years of the gifts is reduced.

A possible downside of making a gift is that a disposal for CGT will occur and so a business valuation is necessary, even if a claim for CGT holdover relief is made.

If you or someone you know would like some guidance in this area, get in touch and arrange a free initial consultation.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. The information in the article is based on current laws and regulations which are subject to change as at future legislations. 

The information in this article is correct as at 15/01/2026.

The Financial Conduct Authority does not regulate tax advice.