The upcoming reforms to Business Property Relief (BPR), alongside wider proposed changes to the inheritance tax (IHT) treatment of pensions, could create unexpected tax bills and increase the risk of disputes between families and business owners.
Preparation is critical, and the question is not if these changes will affect them – but how they will affect them, and whether they are ready. Here are five considerations for business owners, investors and entrepreneurs.
The days of assuming 100% IHT relief are ending
For many years, BPR has provided up to 100% relief from IHT on qualifying business assets of unlimited value. This has allowed many founders to pass their business to the next generation without exposing the business itself to IHT. Achieving the relief has always depended on careful structuring to ensure the right ownership, assets, structure and trading status.
From 6 April 2026, however, 100% BPR from IHT will be capped at £2.5 million per individual. Any qualifying business assets above that threshold will receive BPR at a maximum of 50%, giving an effective 20% tax rate on those assets. Significantly, the allowance is transferable between spouses and civil partners, enabling a couple to get full relief on assets worth up to £5 million. Where the IHT nil rate band (currently £325,000 per individual) can also be used, a business worth up to £5.65 million can be passed from a married couple to the next generation IHT-free.
The £2.5 million BPR cap could have significant implications for those affected. A business previously assumed to be passed entirely free of IHT may now generate a substantial liability. Let’s say, your business is worth £5 million, after April 2026, the first £2.5 million could see relief of up to 100%, but the remaining £2.5 million will only see 50% relief. That means that £1.25 million is exposed to IHT at a rate of 40% (ignoring other reliefs and allowances). This could result in a £500,000 tax bill that would not have applied prior to the changes.
That’s a significant liability – and one which any inheritors might struggle to meet – if most of the estate’s value is tied up in the business.
While IHT can be paid in instalments over 10 years if it relates to qualifying business assets, easing cashflow pressure to some extent, this does not remove the underlying exposure.
Early lifetime giving has become more important
Against this backdrop, lifetime giving has taken on a renewed significance. Looking ahead, there is a longer-term need to think carefully about whether assets should be passed during lifetime to the next generation, either outright or into trust. However, this is not about tax planning in isolation: any gifts must make sense in the wider context of the business, family dynamics, control and succession planning.
There is also a much more immediate opportunity that business owners should be aware of. Under the current rules, gifts of qualifying business or agricultural assets into trust can be made without any cap on 100% relief before 6 April, allowing owners to “bank” relief while it is still fully available.
Longer term, lifetime gifts to trust are likely to remain a useful planning tool in the right context. Starting to plan earlier gives more flexibility, more opportunities to use allowances as they refresh, and a better chance of aligning tax efficiency with the gradual transition of the business to the next generation.
For many business owners, lifetime giving is no longer a niche or optional strategy; it is fast becoming a central part of sensible, forward-looking succession planning.
Your Will and your corporate documents must align
Many business owners won’t have reviewed their Wills since their company was founded, let alone since any increase in value. This could become a sensitive issue for families when the new IHT rules are in force, particularly where multiple beneficiaries are receiving different parts of the estate.
Wills sometimes see the business left to one beneficiary (for example, a child involved in the company) and other assets, such as cash or property, to different beneficiary/ies (often, a spouse or civil partner which gives an exemption from IHT on those assets. From April this could involve unanticipated tax charges or an undesirable burden on a particular beneficiary.
It is important that business owners review their Wills and obtain current valuations to check how tax liabilities will be apportioned. Shareholder agreements and any cross-option arrangements should be reviewed alongside the Will to ensure the tax position supports the ongoing operation of the business.
Business owners should also consider whether trust structures could be appropriate, or remain appropriate, and be mindful that estate planning is no longer a standalone exercise; it must be integrated with corporate governance.
These risks are avoidable with the right estate planning, structuring and documentation. However, they require coordinated planning between Wills, shareholder agreements and any insurance arrangements. Too often, these documents are drafted at different times, by different advisers, without being reviewed together.
With the 2026 changes approaching, now is the time to revisit those arrangements.
Liquidity planning is essential
Even where tax relief remains available, partial exposure to IHT may still require planning to fund any liabilities falling due, as in the example shared earlier of a £5 million business which could face a material IHT bill on the value above the £2.5 million threshold. While instalment options exist, the estate must still find the money.
For growing businesses that reinvest profits rather than holding large cash reserves, liquidity may be limited, and families may face pressure to sell part of the business, take on debt, negotiate with co-owners or find that they need to dispose of other assets unexpectedly. None of these options may be ideal, particularly at a time of a bereavement.
When putting a plan together, it is important to look at all the available funding options, including personal funds, the business itself (including borrowing capacity), and insurance. Life insurance policies written in trust are often used to provide liquidity on death. However, such policies, just like Wills, should be regularly reviewed to ensure cover levels reflect the potential new exposure under the new tax regime. For scale-ups, where valuations can shift rapidly, periodic reassessment is critical.
Early advice will reduce the risk of conflict later
Perhaps the most important takeaway is to remember that delay increases risk and timely action really matters.
Where planning has not kept pace with business growth, misunderstandings and challenging IHT situations are sadly all too common. Founders may understandably, but wrongly, assume the business will pass tax free, while family members may hold differing expectations about ownership or control.
The changes coming into force in April introduce complexity that requires proactive management and planning. Early advice allows time to reassess business structures, update corporate documents and align Wills and tax planning, explore succession strategies and consider lifetime gifting or trust options.
And finally, don’t forget to talk. Communicate intentions clearly to family members and have open conversations now, to prevent disputes later.
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