IHT Changes April 2026: What the New £2.5m BPR Cap Means for Business Owners

The most significant overhaul to inheritance tax reliefs in a generation took effect on 6 April 2026. If you own a business, hold shares in a trading company, or have agricultural property, these changes could substantially increase your estate's IHT liability — and the time to act is now.

What Has Changed?

Effective from 6 April 2026, the UK government reformed Business Property Relief (BPR) and Agricultural Property Relief (APR). Full 100% relief is now capped at a combined lifetime and death allowance of £2.5 million, with any qualifying assets exceeding this threshold subjected to 50% relief — creating an effective 20% inheritance tax rate on the excess.

Before 6 April 2026: Qualifying business and agricultural assets received 100% IHT relief with no upper limit. A trading business worth £5 million could pass to the next generation entirely free of IHT.

From 6 April 2026: The first £2.5 million of combined BPR and APR assets still qualifies for 100% relief. But for value above £2.5 million, relief drops to 50% — meaning IHT of 20% applies to the excess (40% IHT × 50% taxable).

A Worked Example

Consider a business owner with trading company shares worth £5 million:

• Before April 2026: Full BPR — £0 IHT on the shares.
• After April 2026: £2.5 million at 100% relief (no IHT) + £2.5 million at 50% relief. The taxable portion is £1.25 million, generating an IHT bill of £500,000.

That is a £500,000 tax bill where previously there was none — simply because of the legislative change.

Key Adaptations to Be Aware Of

The reforms introduce several important nuances beyond the headline cap:

1. Spousal Transferability

Unused portions of the £2.5 million allowance are fully transferable between spouses and civil partners. This allows couples to shield up to £5 million of combined agricultural or business assets before any BPR/APR is reduced. Spousal planning has never been more important.

2. AIM Shares

Shares listed on the Alternative Investment Market (AIM) — or not listed on recognised exchanges — now only qualify for 50% BPR regardless of their total value. Previously, AIM shares qualified for 100% BPR. Investors with significant AIM portfolios should review their IHT exposure urgently.

3. Trust Allocations

Relevant property trusts have their own £2.5 million 100% relief allowance, refreshing every 10 years, with anti-forestalling measures to prevent individuals from fragmenting assets across multiple trusts to access multiple allowances.

4. Interest-Free Instalments

The ability to pay Inheritance Tax on BPR/APR assets in up to 10 equal annual instalments interest-free has been extended to all eligible property — easing cash flow pressures on estates with illiquid business or agricultural assets.

5. Anti-Forestalling

If you gifted APR/BPR assets between 30 October 2024 and 5 April 2026 and pass away on or after 6 April 2026 within seven years of the gift, that lifetime transfer is pulled back and assessed against your new £2.5 million allowance. Planning undertaken in anticipation of the reforms may not achieve the intended result.

Who Is Affected?

The changes affect:

• Business owners and founders with trading company shares above £2.5 million in value.
• Shareholders in private companies — including those holding shares through EMI, CSOP or other share schemes.
• AIM investors with portfolios previously relied upon for 100% BPR.
• Farmers and landowners with agricultural property.
• Beneficiaries of trusts holding business or agricultural assets.
• Families planning wealth transfer — even where planning was previously thought to be complete.

What About Pensions?

A further change takes effect from April 2027: unused pension funds and death benefits will become subject to IHT for the first time. Previously, pensions could be passed on largely tax-free. From April 2027, pension savings will form part of the estate for IHT purposes — potentially pushing many more estates over the nil-rate bands and into the BPR/APR cap.

For business owners with significant pension pots alongside business assets, the combined effect could be severe.

What Should You Do Now?

If you have not reviewed your IHT planning since before April 2026, you should do so as a matter of urgency. Key steps include:

1. Revalue your business assets. The £2.5 million cap means the valuation of your business interests is now critical. A defensible, well-supported valuation can reduce the IHT exposure.

2. Review ownership structures. Spousal planning, lifetime gifts, and restructuring shareholdings can help maximise the available allowances across family members — with couples able to shield up to £5 million combined.

3. Review AIM portfolios. If you hold AIM shares for IHT planning purposes, the drop to 50% relief fundamentally changes the calculus. Alternative strategies may now be more effective.

4. Consider lifetime gifting. Outright gifts of business assets more than seven years before death fall outside the estate entirely — but be mindful of the anti-forestalling rules for gifts made after 30 October 2024.

5. Re-examine trust structures. Existing trusts holding business assets may need to be reviewed in light of the 50% relief on value above £2.5 million and the 10-yearly trust allowance refresh.

6. Coordinate with your pension planning. With pensions entering the IHT net from April 2027, the interaction between pension savings, business assets and the nil-rate bands needs careful coordination.

Don't Assume Old Planning Still Works

Many business owners implemented BPR-based IHT planning years ago on the basis that qualifying business assets were fully exempt. That assumption no longer holds. Planning that was effective before 6 April 2026 may now leave a significant IHT liability — and the sooner this is identified, the more options are available.

Speak with a Specialist

At Newshams Tax Advisers, we specialise in inheritance tax planning for business owners and high net worth individuals. We can review your current position, identify the impact of the April 2026 changes, and recommend practical steps to mitigate the new liability.

We offer a fixed-fee 45-minute telephone consultation with Simon Newsham CTA for £300 + VAT. Initial discussions are informal and without obligation.

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This article is for general information purposes only and does not constitute tax advice. The rules around BPR, APR and IHT are complex and fact-specific. You can review the detailed technical guidance directly from the UK Government Agricultural and Business Property Relief Changes portal. If you have a specific query, please contact us for a confidential discussion.