Planning for changes to Inheritance Tax is imperative for those who will be impacted by the pending changes to Business and Agricultural Property Relief

As we head into 2026, if you’re a business or property owner, it’s vital to get ahead of planned changes to Inheritance Tax (IHT) and the impact it could have on your assets.

Next Spring will see restrictions applied to Agricultural Property Relief (APR) and Business Property Relief (BPR), potentially increasing the pressure on many farmers, landowners and companies who might already be planning to deal with the current stresses of the economy.

The new restrictions will mean families, estates and businesses will be subject to tighter rules with the introduction of the £2.5 million cap on 100% BPR and APR.

The threshold of £2.5 million was increased by the UK Government in December 2025 and is a welcome increase from the previous level of £1 million.  Whilst that in itself is to be welcomed, a threshold of £2.5 million will still draw many families and farms into unwelcome, and potentially unfundable, tax liabilities on death.

Planning is imperative if you’re to mitigate risk and limit the impact of these taxes on the next generations seeking to continue the family business.

As things stand, BPR is an essential tool for reducing IHT liabilities, providing either 50% or 100% relief on qualifying business assets. This relief applies to business assets transferred on death, through lifetime gifts, or to assets already in trust.

To qualify, a business must be predominantly trading, with more than 50% of its activities being trading, rather than investment based. A two-year ownership period is generally required, although exceptions exist, such as spousal inheritance or asset replacement.

For corporate structures, shares in a trading group’s holding company may qualify for BPR, but investment-heavy subsidiaries may complicate eligibility, requiring regular structural reviews.

It’s also important to identify “excepted assets” that don’t qualify for BPR but may still allow the business to meet the trading threshold.

APR operates similarly to BPR, offering 100% IHT relief on the agricultural value of qualifying land and buildings (excluding any commercial or development value).

APR applies in two situations: when the owner actively farms the land (with a two-year ownership requirement), or when land is let to a working farmer (requiring a seven-year ownership period).

APR generally takes priority over BPR, and BPR may still apply to assets like plant, machinery, goodwill, or any commercial value beyond the agricultural value. Both APR and BPR currently have no limit on relief, provided the assets qualify.

From April 2026 the current system with the introduction of a £1 million cap on the combined value of assets that qualify for 100% relief under both APR and BPR.

This cap, which applies per individual, significantly alters estate planning. The value of assets exceeding this threshold will receive only 50% relief. The cap will be allocated proportionally between agricultural and business assets and will be transferable between spouses, which emphasises the need for joint estate planning where possible. The allowance renews every seven years for lifetime gifts and also applies to transfers into trust.

Shares listed on the Alternative Investment Market (AIM) are now limited to 50% BPR, even if their value is less than £2.5 million.

These changes introduce complexity, emphasising the need for early planning, especially for those with significant business or agricultural assets.

There are transitional provisions in place. Gifts made after 30 October 2024 will be subject to the new limit if the donor dies after 6 April 2026 but within 7 years of the gift. Trusts established before the autumn 2024 budget will have a separate £2.5 million allowance and can benefit from unlimited relief on transfers until their 10-year anniversary after 6 April 2026.

With the number of IHT-liable estates projected to rise by 50% by 2027, now is the time to understand how these reforms could impact you, your business, or your clients.

This article first appeared in The Scotsman and has been updated