CHANGES TO BUSINESS PROPERTY RELIEF (BPR) A RECAP FROM THE 2024 AUTUMN STATEMENT

In Labour’s first budget last year it was announced a reform to the exemptions for inheritance tax (IHT) on assets qualifying for Business Property Relief (BPR) and Agricultural Property Relief (APR). A £1million exemption limit was placed on all qualifying BPR and APR assets with any amounts above this limit receiving 50% exemption. 

Any ownership of a business, or shares in a business, is included in someone’s estate for Inheritance Tax purposes. 

BPR reduced the value of a trading business or its assets when working out how much IHT has to be paid by someone’s estate or on lifetime gifts. If a business asset qualifies, it will either attract 50% or 100% relief from IHT. 

The following assets receive 100% BPR

• A business or interest in an unincorporated business
• Shares in an unlisted trading company 

The following assets receive 50% BPR

• Shares which control more than 50% in a listed company
• Land, Building or Machinery owned by the individual and used in a business they were either a partner or controlled.
• Land, Building or Machinery used in the business and held in a trust has the right to benefit from. 

BPR is not available in respect of a business or shares in a company that is not trading. This would include any business that is ‘wholly or mainly’ dealing in holding investments, including dealing in securities, stock and shares and holding land or buildings not used in a trade. 

Agricultural Property Relief (APR) also takes precedence, so if a business or asset also qualifies for APR, BPR could not be claimed. 

Before the budget announcement, if a business or asset qualified for BPR, there was no cap to the value of exemption for the relevant assets. 

The Government announced that any estate from 6 April 2026, in addition to existing nil rate bands and exemptions, relief of up to 100% is available on qualifying Business and Agricultural assets for the first £1million of combined assets. Any qualifying Business or Agricultural assets in excess of £1m will get 50% relief thereafter. 

Practically this means any business or agricultural assets in excess of £1m will be taxed at 20%, rather than the usual IHT rate of 40%. 

These rules apply from 30 October 2024 and therefore apply to any ‘failed’ lifetime gifts or transfers after this date for anyone that dies after 6 April 2026 and within 7 years of the gift or transfer. 

The Government also announced a reduction in relief for shares designated as ‘not listed’ on the markets of recognised stock exchanges, such as AIM shares from 100% to 50%. 

To provide an illustration for the effects of these changes, please see the following examples 

EXAMPLE 1 – A single estate with qualifying BPR assets before the budget changes 

This is a pre-budget estate where no assets or nil rate bands have been passed on from a previous spouse or civil partner’s death. You will note the full £4.5m value of the trading company shares can be passed on tax free as they qualify for 100% BPR. The deceased standard nil rate band of £325,000 is offset against the remaining estate value. The remaining taxable estate of £905,000 is taxed at the standard IHT rate of 40% giving rise to IHT tax of £362,000, all of which is due immediately.

EXAMPLE 2- An estate with qualifying BPR assets after the budget changes

This is the same scenario as example 1, but the death occurs after 6 April 2026 when the changes announced in the budget take full effect. 

The main difference here when compared to example 1 is that only £1m of the qualifying business asset (trading shares) is exempt from IHT. The remaining £3.5m is now taxable at 50%, so taxed at 20% instead of the usual 40% IHT rate. 

The changes announced will give rise to an increase in IHT payable on this estate of £700,000 (being £3.5m at 20%). 

The additional tax due on the qualifying business assets of £700,000 can be paid in instalments over a 10 year period, although interest may be charged. 

The remaining amount of £362,000 due on the rest of the estate is still due immediately. 

As mentioned previously, the £1 million exemption is spread across both BPR and APR qualifying assets, not £1m per classification. 

When someone’s estate includes both BPR and APR assets, the £1million exemption is apportioned based in the value of each category of qualifying assets. For example, if BPR assets are valued at £3.5m and APR assets are valued at £1.5m in someone’s estate, the exemption will be split £700,000 against BPR assets and £300,000 against APR assets. 

The apportionment may not affect the overall exposure to IHT, if for example all assets in both categories currently qualify for 100% relief. 

It may affect the overall liability if some of the assets in either relief category only currently qualifies for 50% relief so this needs to be considered if you have both BPR and APR qualifying assets. 

If you feel that you may be affected by the proposed changes coming on 6 April 2026 it is important you consider the following 

• Establish your IHT Exposure 

By determining what your potential IHT liability is and how you may be affected by the changes, you will be better placed to make informed decisions with the knowledge of the potential liability that could be due. By determining these amounts we will also be better placed to provide the potential tax planning advice needed. 

Once you know your potential IHT liability being faced, you can consider how any potential tax can be paid. Once all tax planning has been considered, review the liquidity of your asset and consider how easy they can be converted to pay potential tax due. 

Lifetime gifts can mitigate future IHT liability and with the potential of holdover relief you may be able to avoid creating an immediate Capital Gains Tax charge on lifetime gifts. The full implications of gifting assets need to be considered before any decisions are made. 

Every estate is different. The makeup of assets and personal wishes for what happens to these assets differs for everyone, tailored advice is so important. 

• Review your Will 

My colleague Paul Collings in our Tax team has provided guidance on why it is important to review your Will, particularly if it was prepared before these changes were announced. (please find the article here)

If you feel these changes may have an impact on you, please do not hesitate to contact us.