From 6 April 2026, the 100% Inheritance Tax relief that business owners and farmers have relied on for decades is capped for the first time. Business Property Relief (BPR) and Agricultural Property Relief (APR) together now qualify for full relief only on the first £2.5 million of qualifying assets per person. Anything above that threshold receives 50% relief instead, creating a new tax exposure that did not exist before this year.
What Changed on 6 April 2026
Under the previous rules, Business Relief and Agricultural Relief provided 100% relief on qualifying business and agricultural assets with no upper limit. A business owner or farmer with £5 million of qualifying assets paid no Inheritance Tax on that value at all.
The new rules cap combined BPR and APR relief at £2.5 million per person. Qualifying assets up to that amount still receive full 100% relief. Assets above £2.5 million receive only 50% relief, meaning the excess is taxed at an effective rate of 20% (the standard 40% Inheritance Tax rate, halved by the remaining relief).
Worked Example: A £4 Million Family Business
Take a sole owner with a trading business valued at £4 million on death, fully qualifying for Business Property Relief, with no other significant assets.
Under the old rules: the full £4 million qualified for 100% relief. Inheritance Tax due on the business: £0.
Under the rules from 6 April 2026: the first £2.5 million still receives 100% relief and is not taxed. The remaining £1.5 million receives 50% relief, so half of it, £750,000, is added to the taxable estate. At 40%, that produces an Inheritance Tax bill of £300,000, where none existed before.
If the same business were owned jointly by a married couple, and both estates used their full £2.5 million allowance correctly, the combined £5 million allowance would cover the entire £4 million value, and the bill would return to £0. This is why using the transferable allowance correctly matters as much as the cap itself.
The £2.5 Million Allowance Is Transferable Between Spouses
The allowance can be transferred between spouses or civil partners, including where the first death occurred before 6 April 2026. In practice, this means a couple can pass on up to £5 million in qualifying business or agricultural assets with full 100% relief, provided the allowance is used correctly on both estates.
This transferability was added after the original October 2024 proposal set a lower, non-transferable £1 million cap. The final rules, confirmed in late 2025, raised the threshold to £2.5 million specifically to reduce the impact on smaller family businesses and farms.
Lifetime Gifting and the Seven-Year Rule
Gifting a qualifying asset during a lifetime, rather than holding it until death, can remove its value from an estate entirely, provided the person survives seven years from the date of the gift. This rule is unchanged by the 2026 reform, but it now matters more than it did previously.
Gifts made between three and seven years before death benefit from taper relief, which reduces the Inheritance Tax rate charged on the gift on a sliding scale, rather than removing it in one step at the seven-year mark. A gift surviving three to four years is taxed at 32%, four to five years at 24%, five to six years at 16%, and six to seven years at 8%, with anything beyond seven years falling to 0%.
Under the old unlimited-relief rules, business owners often had little reason to gift qualifying assets during their lifetime purely for Inheritance Tax purposes, since the relief covered any value regardless of size. That reasoning no longer holds above the £2.5 million threshold, which is why lifetime gifting is now a genuine planning question for anyone whose qualifying assets exceed the cap.
What Does Not Qualify
AIM-listed shares only ever qualify for 50% relief, regardless of value, so they are not affected by the £2.5 million cap in the same way as other qualifying assets. Business assets held inside a pension do not qualify for relief at all; they must be held directly by the individual to benefit.
Trusts holding qualifying business or agricultural property will also become subject to the £2.5 million cap over time, not only trusts created after 6 April 2026.
Business Relief Investment Products as a Separate Planning Tool
Some business owners and investors use portfolios of Business Relief qualifying investments, holding shares in a range of smaller trading companies, as a distinct estate planning tool separate from a family trading business itself. These products aim to qualify for BPR after being held for two years, rather than the seven years required for lifetime gifting to fall outside an estate.
These investments now sit inside the same £2.5 million combined cap as any other BPR or APR qualifying asset. Anyone using this kind of product alongside a qualifying family business, run through their own limited company, needs to consider both together against the single £2.5 million threshold, not as separate allowances.
The Next Change Already Confirmed: Pensions From April 2027
A second, separate reform is already confirmed for 6 April 2027: most unused pension funds and death benefits will be drawn into the taxable estate for Inheritance Tax purposes. This ends the common planning approach of leaving pension wealth untouched specifically because it sat outside the estate.
For business owners affected by both changes, total estate value for Inheritance Tax planning is likely to be significantly larger than previously assumed, once pension wealth and the new £2.5 million cap are considered together. A full estate review that accounts for both changes, rather than treating them separately, gives a more accurate picture.
Frequently Asked Questions
Does the £2.5 million cap apply per estate or per asset?
It applies per person, as a combined total across all qualifying Business Property Relief and Agricultural Property Relief assets in that person’s estate, not per individual asset or business.
Can I use my spouse’s allowance if they died years ago, before the rule changed?
Yes. The transferable allowance applies even where the first death in a couple occurred before 6 April 2026, provided the transfer is claimed correctly on the second death.
Does holding assets in a limited company instead of personally change the outcome?
The £2.5 million cap looks at the value of qualifying business or agricultural property itself, not the legal structure holding it. Shares in a qualifying trading company are assessed the same way as directly held business assets, provided they meet the underlying BPR conditions. This is a separate question from how you extract income from a company year to year, which our guide to salary vs dividends for 2026/27 covers in detail; Inheritance Tax planning and income extraction planning need to be considered together, not treated as unrelated decisions.
Is there any way to avoid the cap entirely?
Not by simply restructuring ownership. The main levers available are lifetime gifting (subject to the seven-year rule and taper relief), making full use of the transferable spousal allowance, and reviewing which assets genuinely qualify for relief in the first place.
What Business Owners and Farmers Should Do Now
Establish the current market value of qualifying business or agricultural assets to see how far above or below the £2.5 million threshold the estate sits. Review whether assets are held in a way that maximises the transferable allowance between spouses. Consider whether lifetime gifting of assets above the threshold makes sense, given the seven-year survival requirement and taper relief. Check that no qualifying business assets are held inside a pension, since these will not benefit from the relief regardless of the pension reform.
Review any existing will, since the previous assumption of unlimited relief may no longer reflect how the estate will actually be taxed.
How Direct Assist Accountants Can Help
We work with business owners and landowners across Slough, Buckinghamshire, and the wider Berkshire area to assess how the 2026 relief cap and the 2027 pension changes affect a specific estate, and to plan around both changes together rather than reacting to each in isolation. For clients with rental property alongside qualifying business or agricultural assets, our landlord accounting service and our guide to Section 24 and the 2027 property tax changes cover the income tax side of property ownership that usually needs planning alongside Inheritance Tax.
If you hold business or agricultural assets and have not reviewed your Inheritance Tax position since April 2026, get in touch for a free consultation and we will go through the numbers with you.
This article reflects UK Inheritance Tax rules as confirmed for the 6 April 2026 reforms, including the transferable £2.5 million relief cap. Rules and thresholds can change, and Inheritance Tax planning depends heavily on individual circumstances. For advice specific to an estate, consult a qualified accountant.