Business Property Relief – planning opportunities for businesses, shareholders, and estate owners

The changes to Business Property Relief (BPR) will come into effect on 6 April 2026. It’s possible to mitigate the impact of these changes and the subsequent tax liabilities, but it’s vital to start planning now.

What are the upcoming changes to Business Property Relief?

BPR reduces the value of business property when calculating how much inheritance tax (IHT) is due, either on death or when transferring property into a trust, at a rate of 100% or 50%.

From 6 April 2026, there will be a £1 million limit on the value of assets qualifying for 100% BPR. For example, if the shares you own in a BPR-qualifying business are worth £5 million, £1 million of the value will be fully relieved from IHT, with the remaining £4 million being subject to IHT at 20%.

Previously the relief was unlimited, meaning that owners and shareholders of trading businesses could typically rely on what was effectively an exemption from IHT on their business interests, subject to certain ownership conditions.

What are the next steps for businesses and shareholders?

Valuations and minority interest considerations

The valuation of the business is now crucial to enable the directors and shareholders to understand the potential exposure to IHT. For non-listed companies, a valuation may not be straightforward, particularly for a company with a low asset base but high earnings. Often a range of values may be appropriate, and this range can impact the level of tax exposure significantly.

The same applies to Executors of estates following a death. Business assets within the estate (small, unquoted company shares, for example) may form a significant proportion of the estate’s overall value, so the funding of any IHT liabilities will be impactful. It’s the responsibility of the Executor to obtain market value valuations for any chargeable assets in the death estate and pay the corresponding IHT liability.

The proposed changes to BPR will mean many more unquoted share valuations being negotiated with HMRC. It’s important to ensure that any IHT valuations stand up to scrutiny and reduce the likelihood of disputes with HMRC, which can prove time-consuming and costly.

In the case of minority shareholders, certain discounts can be applied to the value of their interest in a business. This will depend on the business and the various rights and control exercised by relevant minority shareholders. These discounts can be substantial and potentially valuable from an IHT perspective, however care should be taken to ensure they are calculated in accordance with HMRC’s guidelines.

“Key” shareholder and life insurance

It’s possible for the business to insure against a tax liability which might arise on the death of a key shareholder. Policies can be taken out which are designed to cover the tax liability, without requiring the company’s assets to be liquidated or the shareholder’s interests to be sold.

Cross option agreements

In the event of a critical illness or unexpected death of a shareholder, cross options can help ensure business continuity by granting an option to the shareholders to buy the shares of the unwell/deceased shareholder. In the context of a deceased shareholder, the agreement may be drafted to grant an option to the deceased’s beneficiary to sell the shares to the other shareholders. Since BPR is denied when there is a binding contract for sale, the terms of this agreement must be carefully drafted to ensure that BPR is not denied.

New share classes and employee share awards

The introduction of new share classes (for example, alphabet shares) can be used to shift the value of the business property to the next generation, whilst retaining control. New classes of shares can be issued with limited rights to control but access to economic benefits. This can reduce the value of a shareholder’s interest whilst not impacting control.

Employee share award schemes can also be an effective way to reduce the value of the business property, whilst maintaining control and serving to incentivise staff. There are a number of different schemes which have distinct tax treatment and requirements, and we can provide further advice on this area.

Employee Ownership Trusts (EOTs)

A sale to an EOT can be a very tax efficient way for a shareholder to exit a business and, once the transaction is complete, the shares will no longer be included within the original shareholder’s death estate.

However, such a sale will have considerable ongoing consequences for the business, so this may not be appropriate in all scenarios.

How we can help

These upcoming IHT reforms could result in a significant increase to a business owner’s IHT liability, and funding this could necessitate a breakup or even sale of the business. However, with careful planning, specialist advice, and a complete understanding of the full impact of these changes, it’s possible to mitigate them for your business’s succession plans.

Our team of valuations specialists have a wealth of experience in preparing IHT valuations for businesses. To discuss the right planning opportunities for your business or estate, please get in touch with Lizzie Murray.

Our article on succession planning for family businesses covers further potential key strategies that may also be relevant for trading business owners and shareholders, including options for transferring assets and the use of trusts.