Just before Christmas, the government announced further changes to the inheritance tax treatment of business and agricultural assets. These updates significantly reshape how Business Property Relief (BPR) and Agricultural Property Relief (APR) will operate from April 2026 and beyond, with implications for business owners, farmers, landowners and trustees.

Richard Dawson and Gregory Winter from Rathbones have summarised the updated position below, setting out both the current framework and the changes ahead. This overview is intended to support informed discussions and planning rather than replace tailored advice.

The headline change is the introduction of a new £2.5 million allowance from 6 April 2026. This allowance will apply to the combined value of assets qualifying for 100% relief under both APR and BPR and will be available to individuals and trusts. Any qualifying value above this threshold will no longer benefit from full relief and will instead attract relief at 50%, resulting in an effective inheritance tax charge of 20% on the excess.

The £2.5 million allowance will not be a one-off. For lifetime gifts, it will refresh every seven years for individuals and every ten years for trusts. From April 2031, it is intended that the allowance will increase in line with the Consumer Prices Index, although this will be subject to future government approval rather than automatic uprating.

Another notable change affects unlisted shares. Shares in companies not listed on recognised stock exchanges, including Alternative Investment Market (AIM) companies and Enterprise Investment Scheme (EIS) shares listed on AIM, will only qualify for 50% relief under the new rules, regardless of value.

Any unused allowance will be transferable between spouses or civil partners, even where the first death occurs before 6 April 2026. However, while the allowance itself transfers, the ownership period does not, meaning the surviving spouse or civil partner must independently satisfy the relevant qualifying conditions.

To understand the impact of these changes, it is helpful to revisit how BPR and APR currently operate.

Business Property Relief is an inheritance tax relief applying to qualifying business assets. Introduced in 1976, its purpose was to allow family businesses to be passed on without forcing a sale to fund an inheritance tax liability. Under the current rules, BPR is available where qualifying assets have been owned for at least two years and are still held at death.

At present, 100% relief is available for interests in a sole trade or partnership, holdings of shares in unquoted companies (including AIM-listed companies), and Enterprise Investment Schemes. Relief at 50% applies to controlling shareholdings in quoted companies and to land, buildings, machinery or plant used wholly or mainly for business purposes.

Agricultural Property Relief operates in a similar way for farming assets. It allows agricultural property to pass either during lifetime or on death without a large inheritance tax charge. APR is available where the land has been occupied and actively farmed by the owner for at least two years, or owned for at least seven years while farmed by another person.

Currently, 100% APR applies where land is actively farmed by the owner or let under a qualifying tenancy. Where land is owned but not directly farmed by the owner, relief is limited to 50%.

From 6 April 2026, the interaction between these reliefs will change materially. Individuals will have a single £2.5 million allowance that applies to assets qualifying for 100% APR and/or 100% BPR, whether held at death or gifted during lifetime. Importantly, qualifying assets gifted on or after 30 October 2024 will reduce the available allowance on death if the donor dies on or after 6 April 2026.

For lifetime gifting, the allowance will refresh every seven years and may increase in line with inflation from April 2031, subject to legislation. For relevant property trusts, there will be a separate £2.5 million 100% trust relief allowance, refreshing every ten years.

Once the allowance is exhausted, qualifying assets will attract relief at 50%, giving rise to an effective inheritance tax charge of 20%. This treatment will apply equally to individuals and trusts.

The reforms also introduce changes to trust taxation. Trust exit charges will be standardised so that all relevant property trust exits are calculated on unrelieved values, regardless of whether the exit occurs before or after the first ten-year anniversary.

On a practical level, the option to pay inheritance tax by up to ten equal, interest-free annual instalments will be extended to all property eligible for APR and BPR, easing cash-flow pressures for some estates.

These changes raise a number of planning considerations. Understanding the likely inheritance tax liability under the new rules will be essential, including how any liability might be funded. In some cases, life insurance policies written in trust may form part of the solution.

There may also be scope to revisit succession planning. Introducing family members earlier or making lifetime gifts of qualifying assets may be attractive, particularly where there is confidence in surviving the relevant seven-year period. While gifts made before 6 April 2026 can still be made without an immediate inheritance tax charge regardless of value, any death after that date and within seven years will bring the £2.5 million allowance into play retrospectively when recalculating tax on failed transfers.

As with all gifting strategies, inheritance tax planning cannot be considered in isolation. Capital gains tax and other wider tax consequences must also be factored into any decision.

If you would like to explore how these changes may affect your position in more detail, Rathbones are on hand and would be happy to discuss this further.