Business and Agricultural Property Relief: Adapting to the £2.5 Million Cap
For many family trading businesses, the most consequential tax change of the last two Budgets isn’t a Capital Gains Tax rate at all. It’s a change to Inheritance Tax relief that only bites on death, or on a lifetime transfer that fails to survive seven years.
What changed on 6 April 2026
Business Property Relief (BPR) and Agricultural Property Relief (APR) have historically given 100% relief from Inheritance Tax on qualifying trading business assets and agricultural property, with no upper limit.
From 6 April 2026, that changes. Each individual now has a combined £2.5 million allowance for 100% relief across their BPR- and APR-qualifying assets together. Above that threshold, relief drops to 50%, meaning the excess value gets taxed at an effective 20% rather than the standard 40% IHT rate, rather than escaping the charge entirely.
The £2.5 million allowance applies per individual. In the government’s final design, it also transfers between spouses and civil partners on death, in the same way the nil-rate band already does — giving a married couple a combined £5 million of 100% relief, if planned correctly.
AIM-listed shares that previously qualified for BPR see a steeper change. They move straight to the 50% relief rate on the full value, without the benefit of the £2.5 million allowance at all.
What this means for a business worth more than £2.5 million
Picture a business owner whose company is worth comfortably more than £2.5 million — the position many owner-managers who’ve spent a career building value now find themselves in. For them, this converts BPR from a relief that made succession planning almost an afterthought into one that requires active management.
That means valuing the business ahead of time, and considering whether some value should transfer during lifetime, where the seven-year survival rule — not the £2.5 million cap — is the more relevant test. It also means reviewing what life insurance or other funding might need to sit alongside the plan, to cover a tax liability that previously wouldn’t have existed.
Why the timing of lifetime transfers now matters
The allowance operates on a use-it-or-lose-it basis on death. You can’t bank it, or carry it into a later disposal. That makes the timing of any lifetime transfers a genuine planning question rather than a formality — and so does how they interact with the £2.5 million threshold at whatever point death eventually occurs.
Frequently Asked Questions
What is the new Business Property Relief cap in 2026? From 6 April 2026, each individual has a combined £2.5 million allowance for 100% BPR/APR relief; value above that gets 50% relief instead of full exemption.
Is the £2.5 million allowance transferable between spouses? Yes, in the same way as the Inheritance Tax nil-rate band, giving married couples and civil partners a potential combined £5 million of 100% relief.
Do AIM-listed shares still qualify for full Business Property Relief? No. From 6 April 2026, AIM-listed shares that previously qualified for BPR move to the 50% relief rate on their full value, without access to the £2.5 million allowance.
How H&Hendricks Can Help
H&Hendricks reviews business value against the new £2.5 million threshold and models lifetime transfer options alongside a client’s wider succession plan, well ahead of the point at which the calculation actually matters.
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