From April 2026, families inheriting UK businesses will face new tax rules that could make passing on larger companies more complicated and costly. The Government has announced a cap on full inheritance tax relief for business assets, marking a significant shift in estate planning for family-owned firms.
Until now, qualifying business and agricultural assets could be passed on free of inheritance tax thanks to Business Property Relief (BPR) and Agricultural Property Relief (APR). These rules allowed assets to escape tax completely, no matter their value. This has long been a key way for family businesses to stay within the family across generations.
Under the new rules, the Government will limit the amount of business or farm assets that can benefit from full relief to £2.5 million per person.
Anything above this figure will only receive 50 per cent relief, leaving the remainder subject to an effective 20 per cent inheritance tax charge. For example, a business worth £4 million would see £1.5 million of its value taxed at 20 per cent, resulting in a potential £300,000 bill.
This reform comes after consultation on an earlier proposal that would have capped full relief at £1 million. Officials said the higher £2.5 million figure better reflects the value of modern family businesses while still addressing concerns about very large estates escaping tax entirely. Surviving spouses or civil partners can also combine allowances, meaning up to £5 million of qualifying assets could be passed on tax-free under the right circumstances.
What do experts have to say about this?
Experts say the changes are likely to have a significant impact on estate planning. Around 4.8 million family-owned businesses in the UK employ more than 13 million people, so how these firms are passed on is crucial not just for families but for the economy. Many of these businesses will now need to review ownership structures and succession plans to avoid unexpected tax bills.
“The new cap makes planning more essential than ever,” said a tax adviser familiar with the reforms. “Business owners should take advice now to make sure the value of their companies can be passed on efficiently, particularly if their firms are worth more than £2.5 million.”
The rules still require that businesses meet specific conditions to qualify for relief. They must be trading businesses, rather than investment holdings, and certain types of shares, such as those listed on some stock markets, may only qualify for 50 per cent relief. Gifts made within the seven years before death are also subject to the new limits, adding further complexity.
The Government said the reforms aim to balance the need to protect family businesses with fairness in the tax system. While the new £2.5 million cap provides relief for many smaller and mid-sized companies, larger businesses may face a more substantial inheritance tax burden.
Families planning to inherit a business are being advised to act early, consider professional legal and tax advice, and review succession plans before the April 2026 changes take effect. Without preparation, heirs could face large tax bills and complications that threaten the smooth transfer of business ownership.
In summary, from April 2026, inheritance of business assets in the UK will no longer be fully tax-free above £2.5 million, and anything beyond that could be taxed at 20 per cent. The change marks a significant development for estate planning, family-owned businesses, and the wider UK economy.