The framework for Business Relief (BR) is set for its most substantial overhaul in decades. Beginning in April 2026, revised regulations will alter how business assets are protected from inheritance tax, making this a key moment to evaluate your current strategies and safeguard your legacy.
The £1 Million Threshold: Understanding the New Limits
From April 2026, the government will implement comprehensive changes to BR. The new system establishes that only the initial £1 million of qualifying business assets will receive complete inheritance tax relief. Any value exceeding this threshold will qualify for 50% relief, effectively creating a 20% tax liability on the surplus value.
This marks a significant departure from the existing system where qualifying business assets can receive 100% relief regardless of their total value.
Additionally, AIM-listed shares will only qualify for 50% relief, changing from their current rate of 100%. This £1 million allowance will also be shared between Business Relief and Agricultural Relief, potentially impacting those who manage farming operations with diverse business activities.
It's also crucial to be aware of anti-forestalling provisions, where the government introduced measures to prevent acting pre-emptively, applicable to transfers made between 30 October 2024 and 5 April 2026.
Qualifying for Business Relief: Essential Criteria
For business assets to qualify for relief, several key conditions must be satisfied. While the two-year ownership requirement remains unchanged, it's vital to recognise that a business must be a genuine trading operation rather than primarily focused on investment holdings. This distinction has become increasingly significant as businesses diversify their activities.
Your business must operate with a clear profit objective, and there cannot be an existing binding contract for sale. This final point frequently catches business owners during succession planning. Additionally, if a company is undergoing liquidation, it becomes ineligible for relief, emphasising the importance of timing in exit planning.
Strategic Approaches for Your Business Structure
With the new regulations approaching, reviewing your business structure has become more important than ever. Consider distributing ownership among family members to take advantage of multiple £1 million allowances. However, this approach requires thoughtful consideration regarding maintaining control and managing future business development.
Hybrid operations combining trading and investment activities present unique challenges under the revised regime. Careful monitoring of income streams and utilisation of assets is necessary to prevent inadvertent loss of relief. This might require restructuring operations or establishing separate entities for different business aspects.
Balancing Control with Succession Planning
For those concerned about directly transferring assets to subsequent generations, trust structures offer an effective solution. These arrangements allow continued control over business decisions while protecting assets from potential relationship complications. Such structures can preserve BR eligibility while still providing family members with income access.
Existing loan relationships with the business will warrant careful examination. Converting loans to shares through rights issues can effectively secure BR qualification, though timing and documentation are crucial. Any restructuring should be supported by clear commercial rationale beyond tax planning to withstand scrutiny.
Business property ownership often presents unique challenges. Whether business premises are held personally or within the company, the new 50% relief cap on personally held assets adds complexity to this decision. Property investment companies require particularly careful consideration under the new framework.
Acting Now: The Importance of Timing
While April 2026 may seem distant, it will soon come around, so early planning is essential. Consider accelerating planned transfers to benefit from current regulations, particularly given potential future increases in capital gains tax rates. Regular consultations with professional advisers have become increasingly important to maintain BR qualification and optimise planning strategies.
Maintaining detailed records of business activities and asset utilisation will help demonstrate trading status and support relief claims.
Reviewing your Will is essential to ensure alignment with the current BR changes. Many existing Wills may create inheritance tax complications following these modifications.
Also, consider whether life insurance might help address potential inheritance tax liabilities.
Transforming Challenges into Opportunities
These BR changes represent the most significant change in business asset protection in recent history. While tax considerations shouldn't be the sole driver of business decisions, understanding these changes is essential for preserving family wealth. Professional guidance has become increasingly valuable given the complexity of these changes and their interaction with other tax reliefs.
Begin by assessing your current position and identifying which assets will be affected by the changes. This evaluation should inform both immediate actions and longer-term strategy development for the post-April 2026 environment. Regular professional reviews will help ensure continued qualification and optimal structuring under the new regulations.
Remember that while these changes present challenges, they also create planning opportunities. The key is acting early, maintaining flexibility, and ensuring your business continues to meet the trading requirements that underpin BR qualification. With thoughtful planning, significant asset protection can still be achieved while meeting commercial objectives.
Expert Support Throughout Your Planning Journey
Seeking professional tax advice regarding your estate for inheritance tax purposes has never been more critical. The BR modifications will substantially increase the inheritance liability for many business owners. However, early action can minimise this impact through strategic planning.
Need more information?
For more information on navigating the new business relief landscape, please feel free to get in touch with our team of expert tax advisors. We are here to help you make sense of the changes and optimise your business strategy. You can contact them by emailing info@ashgates.co.uk or by calling 01332 380691.