What the changes to Business Property Relief (BPR) could mean for private businesses

If you missed Rachel Reeves’ October 2024 Budget announcement re Inheritance Tax (IHT) changes to Business Property Relief (BPR) then you’re not alone.  It appeared to slip under the press radar for a while, perhaps overshadowed by the immediate coverage of the changes to agricultural property relief (APR). 

• Current rules -  business assets (broadly shares in private trading companies, sole traders or partnership assets) qualifying for BPR are free of IHT. 
• New rules - from 6 April 2026, BPR and APR claims will be capped at £1m with tax charged at an effective rate of 20% on the amount over £1m.  

Put simply, if you have private company shares worth £2m the first £1m is tax free but (unless other exemptions, such as spouse/civil partner exemption apply) you will have a potential IHT liability of £200,000.

The £1m cap referred to above is a combined cap for both BPR and APR.  The new tax charge will generally apply on the death of an owner of BPR/APR assets but will also apply to lifetime gifts of business assets in some circumstances.

Implications 

This new tax regime will have a significant (perhaps an understatement) effect on owners of UK trading businesses.  The IHT cap on BPR will likely result in financial difficulties for these owners, both in funding the tax and also in planning for the future of the business (growth plans/investment).  

Funding the tax - where does the money come from? 

IHT is generally payable by the deceased’s estate.  

But how does this work practically?  

How the family funds an IHT liability will affect the business. If the estate comprises personal assets and the shares cannot be sold readily, then unanticipated IHT liabilities may lead to a fire sale of assets to pay the tax, or expensive financing arrangements which will depress the value of an otherwise healthy and well-run business.

Otherwise, families may need to borrow money for the IHT bill or call on the company in question to pay them a dividend to pay the tax. This will result in a double tax bill in effect, given the higher dividend rates of tax.

Insurance is another option, but premiums should be considered, and whether the shareholder is insurable!

What can be done?

Sorry, but there is no simple answer to this yet.

The changes outlined have been announced, but the legislation may contain some differences, so we need to wait and see for now.  

We also need to consider the anti-avoidance rules, for instance, those which will apply to trusts settled on or after 30 October (Budget day) and before 6 April 2026. This will make it harder for affected taxpayers to mitigate their future liability in the 17 months before the new rules come into force.

All we can do is continue to monitor progress.

In the meantime, speak to your usual adviser to start the discussions now, consider your current, medium and long-term plans for your business and keep in touch.

If you'd like more information, please contact Julie Garbutt.