Business Property Relief in 2026: What the New Rules Mean for Your Estate

For business owners, Business Property Relief (BPR) has quietly been one of the most valuable reliefs in the UK tax code. Structured properly, it can take the entire value of qualifying business assets out of Inheritance Tax at 100%. From 6 April 2026, the rules changed, and the drafting that worked in 2024 no longer produces the same result. If your estate includes shares in a private company, an unincorporated business, or AIM-listed investments, your will and your shareholders' agreement need a fresh look.

What BPR Does

BPR reduces the value of qualifying business assets for Inheritance Tax purposes. Before 6 April 2026, qualifying assets attracted either 100% relief (typically unquoted trading company shares, AIM-listed shares, and interests in an unincorporated business) or 50% (typically shares giving control of a quoted company, and certain land, buildings or machinery used in the business). Relief was uncapped: a £5 million qualifying shareholding could pass to the next generation with no IHT at all.

What Changed on 6 April 2026

Three changes matter.

A £2.5 million allowance for the 100% rate. Each individual now has a £2.5 million relief allowance covering the combined value of property qualifying for 100% agricultural property relief and 100% business property relief. Value above the allowance qualifies for relief at 50%, which produces an effective IHT rate of 20% on the excess. The allowance is transferable between spouses and civil partners: any unused allowance passes to the surviving spouse's estate, so a couple can potentially shelter up to £5 million of qualifying assets at the 100% rate. (The Government announced the transferable £2.5 million figure in December 2025, replacing the £1 million per-person figure originally consulted on in 2024. Draft legislation confirms the 6 April 2026 start date.)

AIM-listed shares dropped from 100% to 50%. From the first pound, in all cases. Shares in companies listed on a market that does not meet HMRC's definition of "listed" (which HMRC's guidance gives AIM as the example of) now qualify for 50% relief only, and the value of those shares does not use up the 100% allowance. If you hold an AIM portfolio for BPR purposes, your effective IHT rate on those shares has moved from zero to 20%. That is a material shift and, for many families, the reason to review the shareholding strategy entirely.

Two-year holding period unchanged. Shares held for less than two years at death still usually qualify for nothing (section 106 IHTA 1984). Deathbed transfers into qualifying assets remain a bad idea.

Why This Matters for Owner-Managed Businesses

For a family running a business worth £5 million, the pre-2026 position was a clean 100% relief on the shares. Under the new rules, a single shareholder with no transferred allowance gets 100% on the first £2.5 million and 50% on the remaining £2.5 million, producing IHT of £500,000 that simply did not exist before. A married couple who split the shareholding equally and use both allowances (either through lifetime planning or through wills that route qualifying shares into trust rather than to the survivor outright) can still shelter the whole £5 million at the 100% rate. The difference is real cash, payable within six months of death, on an asset the family cannot easily sell in that timeframe.

The planning response is not to abandon BPR, which remains a powerful relief. It is to be more deliberate about who owns what, how it passes on death, and how each spouse's £2.5 million allowance is actually used across the family.

The Spouse Question

The most common drafting instinct for a business owner's will is to leave qualifying shares outright to the spouse. It is not the disaster it would have been under the £1 million per-person version of the reforms, because the allowance is now transferable, but it is still often not the best answer. Three reasons.

First, using the allowance on the first death gives certainty. The company may not qualify for BPR by the second death: it may have drifted into investment activity, been sold, or been restructured in a way that fails the trading test. An allowance used on the first death is banked. An allowance carried over depends on the shares still qualifying years later.

Second, growth in the value of the shares between the two deaths falls into the surviving spouse's estate. If the trust route is used instead, that growth accrues outside the survivor's estate.

Third, the transferable allowance is subject to a formal claim within four years of the survivor's death (or six months of personal representatives being appointed), and depends on records being kept properly for what may be decades. A discretionary trust on the first death is a self-executing solution.

For these reasons, well-drafted business-owner wills routinely route qualifying shares into a discretionary or nil-rate-band trust on the first death rather than to the spouse outright. The right choice depends on the family, the company and the value at stake, but the automatic "everything to spouse" default deserves to be questioned in every case.

The Contract-for-Sale Trap

BPR is lost if, at the date of death, the shares are subject to a binding contract for sale (section 113 IHTA 1984). This is why cross-option agreements are drafted as reciprocal options rather than obligations. Under a properly drafted cross-option, the survivors have an option to buy and the estate has an option to sell, both at a pre-agreed valuation basis. Because neither side is contractually bound until an option is exercised, HMRC accepts that there is no binding contract for sale at the date of death.

HMRC's long-standing position, set out in Statement of Practice 12/1980, is that a "buy and sell" agreement that obliges the personal representatives to sell and the survivors to buy is a binding contract for sale within section 113, and BPR is therefore not due. An agreement conferring reciprocal options (each side merely has the right to require the sale) is not caught. That single drafting distinction is the difference between preserved relief and 40% IHT on the shares. If your shareholders' agreement contains a buy-out on death, check the mechanism.

AIM Portfolios, Reconsidered

For a decade, AIM portfolios were sold as a straightforward IHT play: buy qualifying AIM shares, hold for two years, get 100% relief. The 2026 change halves that, from the first pound, and AIM shares no longer use the 100% allowance at all. The reasons to hold AIM shares now need to weigh the underlying investment merits, not just the tax outcome, and the tax outcome is a 20% effective rate rather than zero. For estates that took the AIM route specifically for IHT, the arithmetic has shifted and the strategy is worth revisiting.

What to Do Now

If you own shares in a private company or an unincorporated business, three questions matter this year. First, does your will route qualifying assets in a way that actually uses your £2.5 million allowance, rather than assuming the transferable allowance will be there to catch it on the second death? Second, does your shareholders' agreement contain reciprocal options rather than a binding obligation on death, so that BPR survives under Statement of Practice 12/1980? Third, if you hold AIM shares for BPR, is the underlying investment still one you would hold on its merits alone?

The point of BPR was always to keep businesses in family hands rather than force a fire-sale to pay the tax bill. The 2026 rules make that harder without careful drafting. They make it materially cheaper with it.

Bonsai Law drafts wills, shareholders' agreements and cross-option agreements as a single joined-up structure for owner-managed businesses. If your estate includes business assets and your documents predate April 2026, that's the review to book.

A note on scope: we are solicitors, not tax advisers. What we do is spot where Business Property Relief and wider Inheritance Tax planning bear on your will and company documents, and draft those documents so they don't accidentally waste the relief. Where you need formal tax advice, we either bring in a specialist through our own network or work alongside your existing accountant or financial adviser. You can see the advisers we work with on our partners page.