Understanding Business Property Relief Changes

Why Valuations Now Matter More Than Ever

Business Property Relief (BPR) has long been one of the most valuable tools in inheritance tax (IHT) planning. For many business owners, it has provided a route to pass trading businesses to the next generation with little or no IHT exposure, often removing the need for detailed tax valuations at the point of transfer.

That position is changing

From 6 April 2026, reforms to BPR will significantly alter the landscape. Assets that currently benefit from 100% relief may no longer do so in full, meaning that IHT liabilities could arise where previously none existed. As a result, understanding and crucially, being able to justify the value of a business is becoming central to effective succession planning.

This is not simply a technical adjustment. It represents a fundamental shift in how business wealth is taxed and managed.

How BPR is changing

Under the previous rules, qualifying business assets could attract either 50% or 100% relief from IHT. In many cases, particularly for shares in unquoted trading companies, this results in complete exemption.

However, from April 2026, two key changes will apply:

• A £2.5 million cap: 100% BPR will apply only to the first £2.5 million of qualifying business and agricultural assets combined.
• Reduced relief beyond the cap: Assets exceeding this threshold will generally receive 50% relief, resulting in an effective IHT charge of 20% on that excess value.
• AIM shares: Shares listed on the Alternative Investment Market (AIM), which currently qualify for 100% relief, will instead attract 50% relief.

For many business owners, this will introduce an IHT exposure for the first time. A business valued at £10 million, for example, could give rise to an IHT liability of £1.8 million on death, where previously no tax would have been due.

Transferring unused allowances from a spouse or civil partner

If the person who died had a spouse or civil partner who died before them, you can transfer any unused allowances from their estate, even if the first death occurred prior to 6 April 2026.  This could make the allowance worth up to £5 million.

The claim for the transferred allowance must be made by the later of:

• 4 years after the death of the second person
• 6 months after the executor or administrator started their role

Why valuations are now critical

Historically, where 100% BPR applied, valuations were often approached with less urgency. If no tax was payable, the precise figure attached to the business was less likely to be challenged or scrutinised.

That will no longer be the case. From 2026 onwards, valuations will directly determine:

• Whether the £2.5 million threshold has been exceeded
• The amount of IHT payable
• The allocation of relief across different assets

Valuations will therefore be required in a wider range of scenarios, including:

• Lifetime transfers, such as gifting shares or settling them into a trust
• Ten-year anniversary and exit charges within trusts
• Death estates, including failed potentially exempt transfers

In short, valuation is moving from a compliance exercise to a key driver of tax exposure.

Extension of the option to pay IHT in annual instalments

Up to 5 April 2026, there has been an option to pay IHT on things that might take time to sell, such as real property, in equal annual instalments over ten years.  Interest is payable on the instalments.

From 6 April 2026, the option to pay IHT by up to ten equal annual instalments, interest-free, will apply to all property eligible for APR/BPR.  Any late payments will attract an interest charge.

These rules will not apply to any assets you were already paying instalments on before 6 April 2026.

Increased HMRC scrutiny

Where tax is at stake, scrutiny follows.  HMRC can be expected to take a much closer interest in how business assets are valued for IHT purposes. This is particularly relevant where valuations impact the application of the £2.5 million threshold or materially affect the tax payable.

Key areas of focus are likely to include:

• The company’s trading performance and future prospects
• The selection of appropriate valuation methodologies
• The use of comparable market data and earnings multiples
• Discounts applied for minority shareholdings
• The treatment of goodwill and intangible assets

Even for AIM-listed shares, the position is not always straightforward. Where shares are thinly traded, HMRC may challenge whether the quoted price accurately reflects market value for tax purposes.

For private companies, the absence of a readily observable market adds further complexity. Valuations must be robust, defensible and aligned with established tax case law principles.

Trust structures and potential changes

Alongside the BPR reforms, further changes may affect how assets held in trust are valued.

Up to 5 April 2026, shares held across multiple trusts created by the same settlor were typically valued independently, with minority discounts applied to each holding.

However, from 6 April 2026 there is the introduction of a ‘related property’ rule, under which holdings across connected trusts will be aggregated if this results in a higher valuation. This could significantly increase the value attributed to trust-held shares for IHT purposes, reducing the benefit of minority discounts and increasing tax exposure.

Trustees should therefore review existing structures carefully and consider how these potential changes may interact with the new BPR regime.

Managing the impact

For business owners, trustees and advisers, the key question is not simply what has changed, but how to respond. A starting point is to quantify the potential IHT exposure under the new rules. This requires a realistic valuation of the business and a review of how relief will apply across the estate.

From there, a range of planning options may be considered:

Gifting and trust planning

Lifetime gifting remains an effective strategy, particularly where the donor is likely to survive seven years. Trusts may also be used, although care is needed given the interaction with the new rules and potential charges.

Business restructuring

Reviewing share ownership and capital structure can help maximise the use of available reliefs, including ensuring that both spouses utilise the £2.5 million threshold where appropriate.

Business sale or exit planning

For some owners, a sale may provide liquidity and greater flexibility for IHT planning. Options such as a trade sale, private equity investment or an AIM listing should be considered in the context of both tax and commercial objectives.

Employee ownership trusts (EOTs)

Selling to an EOT has been an attractive option in many cases, offering a potential CGT exemption on disposal. However, as of 25 November 2025 only 50% of the gain will be exempt from CGT meaning an effective 12% CGT rate.  The remaining 50% will be subject to normal CGT rules.  This may impact the attractiveness of this structure for business owners.

The resulting cash proceeds will form part of the estate for IHT purposes, requiring further planning.

Funding future liabilities

Where an IHT liability is unavoidable, planning how it will be funded is essential. Options may include life insurance or structured share buybacks, although both require careful tax analysis.

The bigger picture

These changes represent more than a technical adjustment to BPR. They mark a shift in policy towards bringing more business wealth within the scope of inheritance tax.

For many family-owned businesses, this introduces a new layer of complexity. Decisions that were once straightforward — such as retaining shares until death — may no longer deliver the most efficient outcome.

At the same time, the increased importance of valuations places greater emphasis on early planning, robust documentation and professional advice.

As always, these articles provide an overview of the various measures available, and no action should be taken without seeking professional advice. At Ritchie Phillips, we pride ourselves on providing clear, pragmatic advice to help businesses, individuals and families. If you’d like to discuss any of the above, please get in touch.