In the 2024 Autumn Budget, chancellor Rachel Reeves announced that, for the first time since 1992, businesses will no longer be eligible for 100% Inheritance Tax (IHT) relief on all qualifying assets, effective from April 2026.
Instead, new thresholds will mean more estates comprised of business and agricultural property might be liable for IHT.
Due to a backlash from farmers and business owners, the government has twice made changes to the measure since it was announced. But what will the limits be at the turn of the new financial year? How will you be affected, and what could you do to prepare?
Continue reading to find out more about Business Relief and how the changes will affect you from April 2026, as well as how you can plan for the new rule changes to ensure more of your estate passes on after you die.
Business Relief will be capped at £2.5 million in assets from April 2026
In 2025/26, the rules for Business Relief are mostly the same as in 1992 – qualifying business assets can benefit from up to 100% relief from IHT.
But, in October 2024, Reeves announced that 100% Business Relief would only apply to assets up to £1 million from 6 April 2026. Qualifying assets over the £1 million threshold would only be eligible for 50% relief, meaning that IHT would be charged at a rate of 20%, rather than 40%.
Reeves amended the legislation in the 2025 Autumn Budget, stating that the new threshold would apply per person. So, spouses and civil partners could claim 100% relief up to their combined threshold of £2 million.
Then, on 23 December 2025, the government increased the individual threshold to £2.5 million. As a result, spouses and civil partners could pass on a combined £5 million of qualifying assets IHT-free from April 2026.
You can claim relief on business assets like property, equipment, machinery, and unlisted shares
While numerous threshold changes may have made it difficult to pin down how your estate might be affected, the main rules for Business Relief have stayed the same.
According to HMRC, if you are passing on qualifying business assets, you could claim 100% IHT relief on:
- A business or interest in a business
- Shares in an unlisted company.
You can claim 50% relief on:
- Shares controlling more than 50% of the voting rights in a listed company
- Land, buildings, or machinery used in a business that the deceased was a partner in or controlled
- Land, buildings, or machinery used in a business and held in a trust that the deceased had the right to benefit from.
Importantly, relief can only be claimed on eligible assets if you held them for at least two years before you died and still held them at the time of your death.
5 ways that you could reduce your estate’s Inheritance Tax bill
There are several ways that you could mitigate your estate’s overall IHT liability by effectively planning both your business and personal assets.
1. Making the most of your tax reliefs and exemptions
There are several allowances and reliefs you could take advantage of when passing on your estate. As mentioned previously, you can claim 100% relief on up to £2.5 million of business assets from April 2026, doubled to £5 million if you are married or in a civil partnership.
For your personal assets, the nil-rate band allows you to leave £325,000 of your wealth without being subject to IHT, as of 2025/26. If you pass on a primary residence to a direct descendant, the residence nil-rate band of £175,000 may also apply, bumping your total IHT-free allowance up to £500,000. These tax-efficient thresholds are set to remain frozen until 2031.
Any unused nil-rate and residence nil-rate bands can be transferred to a surviving spouse or civil partner, meaning your combined estate could be valued at up to £1 million before IHT becomes payable.
2. Taking advantage of lifetime gifting rules
You could also improve your IHT efficiency by making use of HMRC’s gifting exemptions. Gifts that are IHT-free from the moment you make them include:
- Gifts totalling up to £3,000 a year, known as the annual exemption
- £5,000 (maximum) if given as a wedding gift, depending on the recipient
- Gifts of up to £250 a year, which you can give to an unlimited number of people through the small gift allowance (this cannot be combined with any other allowance)
- Gifts made from your regular income (although strict rules apply).
Giving while living generally allows you to lower the value of your estate for IHT purposes, while tax-efficiently passing on your wealth to your chosen beneficiaries.
3. Gifting earlier could reduce your estate’s Inheritance Tax liability
You might be able to reduce your estate’s IHT bill by gifting earlier in life.
HMRC’s seven-year rule stipulates that any gifts that exceed the annual gifting allowances (above) can be exempt from IHT, so long as the donor lives for seven or more years after giving the gift. In these seven years, the gift is treated as a potentially exempt transfer (PET).
Gifts can range from cash to assets like art or property.
If you die within seven years of gifting a PET, it may be eligible for “tapered relief,” which charges IHT at a reduced rate based on how long ago the PET was given.
4. Leaving 10% of your estate to charity
In some cases, you can reduce an IHT liability by leaving 10% of your estate’s net value to a charity (or charities) of your choice. In this case, your estate could pay a reduced rate of 36% instead of the standard 40% rate.
This might be helpful if you already planned to gift wealth to a worthwhile cause. However, doing so will generally reduce the overall amount of wealth your beneficiaries inherit.
5. Putting your assets into a trust to mitigate Inheritance Tax
When you place assets into a trust, they generally sit outside your estate. This means they might not be liable for IHT when you pass away, which can help to reduce the bill your loved ones will have to pay.
But the rules for trusts are complex. There are different types of trusts, each with their own specific tax rules, meaning there is no one-size-fits-all rule to follow. If you want to discover whether you can benefit from a trust, it may be worth seeking advice from a financial planner who can help you make an informed decision.
Get in touch
Finding ways to reduce your estate’s IHT liability can be complicated, especially when policy is changing so frequently.
Fortunately, an Engage Wealth Management financial planner can help you decide how to prepare your estate for the new IHT rules and keep track of any future policies that may affect your wealth.
Email us at [email protected] or call 01273 076 587 today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, tax planning, or trusts.
Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief. Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.
