Business Property Relief (BPR)

The UK Autumn Budget 2024 introduced significant reforms to Business Property Relief (BPR), raising concerns among business owners and investors regarding their Inheritance Tax (IHT) planning. Traditionally, BPR has allowed business owners to pass on qualifying business assets with reduced or no IHT liability, often at a relief rate of 100%. However, recent changes are set to increase the IHT burden for many individuals and trusts.

Introduction of a £1 Million allowance

Effective from 6 April 2026, the 100% BPR rate will be capped at £1 million per individual. Any qualifying business assets exceeding this threshold will receive a reduced relief rate of 50%. This allowance is shared with Agricultural Property Relief (APR), meaning the total value of assets eligible for full relief under both BPR and APR cannot exceed £1 million.

Reduction of relief for AIM-listed shares

Previously, shares listed on the Alternative Investment Market (AIM) qualified for 100% BPR, offering a significant IHT advantage. However, under the new rules, AIM-listed shares will now only qualify for 50% relief, regardless of their value. This adjustment will impact investors who have relied on AIM shares as a key component of their IHT mitigation strategies.

Impact on Trusts

For relevant property trusts, each trust will have its own £1 million allowance for assets qualifying for 100% relief on each ten-year anniversary charge or exit charge. However, trusts established after 30 October 2024 by the same settlor must share this allowance, which could complicate estate planning strategies that rely on multiple trusts.

Increased IHT liability

Clients holding business assets exceeding the £1 million threshold will face a higher IHT liability due to the reduction in relief from 100% to 50% on any excess value. This means that business owners and investors must reassess their tax planning to account for these changes.

Estate planning challenges

The revised BPR rules necessitate a thorough re-evaluation of estate plans, particularly for those who have structured their affairs to maximise BPR benefits. Individuals may need to explore alternative strategies, such as restructuring business ownership or reviewing Will arrangements.

Trust arrangements

Clients who use trusts as part of their estate planning must review these structures to determine how the £1 million allowance for trusts will affect them. This will be particularly important where ten-year anniversaries are due to arise soon after 6 April 2026 or where exits from the trust are expected.

Given the significant changes to BPR, it is essential for business owners, investors, and trustees to consult with their financial advisers as soon as possible. A proactive approach will help ensure estate planning strategies remain effective and compliant with the new regulations.

By reassessing business structures, reviewing trust arrangements, and considering alternative IHT mitigation strategies, clients can adapt to these changes and minimise their potential tax burden.

For personalised advice on how these changes may affect you, seek guidance from a tax specialist or estate planning expert to secure the most tax-efficient solutions under the new BPR framework.