What is Business Property Relief (BPR) for inheritance tax?

BPR provides up to 100% relief from inheritance tax on qualifying business assets, including shares in unlisted trading companies, sole trader businesses, and certain business property. It is one of the most powerful IHT reliefs available. Business Property Relief (BPR) can provide either 100% or 50% relief from IHT on qualifying business property. 100% relief applies to: a business or interest in a sole trader business; shares in an unlisted trading company (including AIM shares); and certain unlisted shares. 50% relief applies to: shares controlling more than 50% of the voting power in a listed company; and certain business assets held by a controlling shareholder. The business must be a 'trading' business — investment businesses (such as property investment companies) generally do not qualify. The property must have been owned for at least 2 years before death (or before transfer to a trust). BPR is claimed by the executors on the IHT return. Relevant legislation: Inheritance Tax Act 1984, Sections 104-113 (Business Property Relief). Example: A business owner holds 100% of the shares in a qualifying unlisted trading company worth £3 million. On death, the first £2.5 million gets 100% BPR (no IHT), and the remaining £0.5 million gets 50% BPR (effective 20% IHT = £100,000). Without BPR, the IHT bill would be approximately £1.07 million (after the nil-rate band). Common mistake: Assuming all business assets qualify for BPR. Investment activities (property letting, holding investments) typically do not qualify. A careful review of the business activities is essential before relying on BPR.

Which business activities qualify for BPR?

BPR is available for 'trading' businesses. The business must be wholly or mainly a trading business (at least 50% trading activity). Excluded activities include property investment, dealing in land, banking, farming, and certain professional services. BPR is only available for businesses that are 'wholly or mainly' trading. HMRC applies the 'wholly or mainly' test, which is generally interpreted as at least 50% trading activity (by turnover, asset value, or time spent by management). Activities that are specifically excluded from BPR include: dealing in land or buildings; holding investments; banking; market making; and certain professional services (but only if carried on by a company or partnership, not a sole trader). A mixed-activity business may still qualify if the trading activity is substantial (generally at least 50%). For example, a company that both manufactures products (trading) and holds investment property (non-trading) may qualify for BPR if the manufacturing activity is at least 50% of the business. Each case is assessed on its own facts. Relevant legislation: Inheritance Tax Act 1984, Section 105 (relevant business property); Section 105(3) (excluded activities). Example: A company manufactures furniture (trading) and also holds two investment properties (non-trading). If the furniture manufacturing represents at least 50% of the business by turnover, assets, or management time, the shares in the company may qualify for BPR. If the investment properties represent more than 50%, BPR would not be available. Common mistake: Assuming that a company with some trading activity automatically qualifies for BPR. The 'wholly or mainly' test requires trading activity to be at least 50%, and HMRC may challenge the apportionment.

What are the April 2026 changes to BPR?

From 6 April 2026, BPR and APR are subject to a £2.5 million combined cap on 100% relief. For qualifying assets above £2.5 million, relief is reduced from 100% to 50%, meaning an effective IHT rate of 20% on the excess. The October 2024 Budget announced significant changes to BPR and Agricultural Property Relief (APR) from 6 April 2026. The changes introduce a £2.5 million combined cap on 100% relief for qualifying business and agricultural property. For the value of qualifying assets above £2.5 million, relief is reduced from 100% to 50%, meaning an effective IHT rate of 20% on the excess (instead of 0%). The £2.5 million cap applies to the combined value of BPR and APR qualifying assets. Assets below £2.5 million continue to receive 100% relief. There may be transitional provisions for assets held before 30 October 2024, but the detail is still being confirmed. This change significantly increases the IHT exposure of business owners and farmers with qualifying assets above £1 million. Relevant legislation: Finance Bill 2025-26 (as announced in the October 2024 Budget); IHTA 1984 Sections 104-113 (as amended). Example: A business owner has qualifying trading shares worth £3 million. Before April 2026, 100% BPR applied (no IHT). Under the April 2026 rules (now in effect): £2.5 million gets 100% relief (no IHT); the remaining £0.5 million gets 50% relief (effective 20% IHT = £100,000). The IHT bill goes from £0 to £100,000. Common mistake: Assuming BPR will continue to protect all business assets after April 2026. The £2.5 million cap means business owners with substantial assets should review their estate planning urgently.

Do AIM shares qualify for BPR?

Yes, shares traded on the AIM (Alternative Investment Market) generally qualify for 100% BPR, provided the company is a qualifying trading company and the shares have been held for at least 2 years. AIM shares are treated as 'unlisted' for BPR purposes, which means they can qualify for 100% BPR if the company is a qualifying trading company. The company must be a trading company (or the holding company of a trading group) and must not be engaged in excluded activities. The shares must have been held for at least 2 years before death. AIM shares are a popular IHT planning tool because they can be purchased through an ISA or a general investment account and qualify for BPR without requiring active involvement in a business. However, there are risks: AIM shares can be volatile, and if the company ceases to be a qualifying trading company during the 2-year period, BPR may be lost. Specialist advice is recommended before investing in AIM shares for IHT planning. Relevant legislation: Inheritance Tax Act 1984, Section 105(1)(d) (unlisted shares); IHTA 1984 Section 105(3) (excluded activities). Example: An investor purchases £500,000 of AIM shares in a qualifying trading company in 2023. If they die in 2026 (more than 2 years later) and the company remains a qualifying trading company, 100% BPR applies. The shares pass free of IHT, saving up to £200,000 (at 40% of £500,000). Common mistake: Assuming all AIM shares qualify for BPR. Some AIM companies are investment companies or have significant non-trading activities, which may disqualify them. Each AIM company must be assessed individually.

Can BPR be lost and how do I protect it?

BPR can be lost if the business ceases to be a qualifying trading company, if the assets are sold, or if the 2-year ownership period is not completed. Regular reviews and careful structuring can help protect BPR. BPR can be lost in several ways: (1) The business ceases to be a qualifying trading company — if the business's activities change such that it is no longer wholly or mainly trading, BPR may be lost. (2) The assets are sold — if business property is sold before death, BPR is lost (unless replaced within 3 years under the replacement property rules). (3) The 2-year ownership period is not completed — if the business or shares are acquired less than 2 years before death. (4) The business is wound up — if the business ceases trading and enters a period of inactivity, BPR may be lost. To protect BPR: (a) Regularly review the business's activities to ensure it remains a qualifying trading company. (b) Avoid significant changes to the business's activities without specialist advice. (c) Consider the timing of any sale of business assets. (d) Keep detailed records of the business's trading activities. Relevant legislation: Inheritance Tax Act 1984, Sections 104-113 (BPR provisions); Section 108 (replacement property). Example: A business owner has shares in a qualifying trading company. The company decides to sell its trading business and hold the proceeds as investments. If the company ceases to be a qualifying trading company, BPR on the shares may be lost. The business owner should seek specialist advice before any significant change in the company's activities. Common mistake: Not reviewing the business's activities regularly. Changes in the business's activities (e.g., selling the trading operation, acquiring investment properties) can inadvertently disqualify the business from BPR.

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Business Property Relief (BPR)

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BPR can provide up to 100% relief from inheritance tax on qualifying business assets. Understand the rules, qualifying activities, and the April 2026 changes that cap relief at £2.5 million.

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Business Property Relief (BPR) is one of the most powerful inheritance tax reliefs available, potentially reducing or eliminating IHT on qualifying business assets. However, the rules are complex, and not all business assets qualify. With the April 2026 changes introducing a £2.5 million cap on 100% relief, understanding BPR is more important than ever for business owners.

What BPR Provides

BPR can provide either 100% or 50% relief from inheritance tax on qualifying business property. 100% relief applies to a business or interest in a sole trader business, shares in an unlisted trading company (including AIM shares), and certain unlisted shares. 50% relief applies to shares controlling more than 50% of the voting power in a listed company, and certain business assets held by a controlling shareholder. The relief reduces the value of the business property for IHT purposes, potentially eliminating the IHT charge entirely.

Qualifying Trading Activities

BPR is only available for 'trading' businesses — not investment businesses. The business must be wholly or mainly a trading business. HMRC applies a 'wholly or mainly' test, generally interpreted as at least 50% trading activity (by turnover, asset value, or time spent). Excluded activities include: property investment, dealing in land, banking and finance, farming, market making, and certain professional services. A company with mixed trading and investment activities may still qualify if the trading activity is substantial (generally at least 50%).

The 2-Year Ownership Rule

Business property must have been owned for at least 2 years before death (or before transfer to a trust) to qualify for BPR. For shares in an unlisted company, the company must have been a qualifying trading company throughout the 2-year period. If the business started less than 2 years before death, BPR may not be available. There are special rules for replacement business property — if business assets are sold and replaced within 3 years, the replacement property may qualify.

The April 2026 Changes

From 6 April 2026, BPR and APR are subject to a £2.5 million combined cap on 100% relief. For qualifying assets above £2.5 million, relief is reduced from 100% to 50%, meaning an effective IHT rate of 20% on the excess. This is a significant change for business owners with substantial qualifying assets, and proactive planning is strongly recommended.

Key Points

What You Need to Know

BPR provides 100% or 50% relief from IHT on qualifying business assets
Only trading businesses qualify — investment businesses are excluded
Business property must be owned for at least 2 years before death
From April 2026, 100% relief is capped at £2.5 million (combined with APR)
Above £2.5 million, relief is reduced to 50% (effective 20% IHT rate)

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