Labour’s inheritance tax shake-up is here – and business owners are among the hardest hit. The Autumn Budget 2024 reforms tighten long-standing reliefs and bring more estates, shares and businesses into the IHT net than ever before.

With the April 2026 inheritance tax deadline fast approaching, company directors, business owners and their advisers should urgently review succession plans and business structures to avoid unexpected tax liabilities.

Background to Labour’s Inheritance Tax reforms

The Labour government’s 2024 Autumn Budget triggered a major overhaul of inheritance tax (IHT). While many headlines focused on changes to Agricultural Property Relief (APR), business owners face some of the most significant impacts.

Business Property Relief (BPR), AIM-listed shares and, from 2027, unused pensions are all being restricted – creating new risks for directors, shareholders, and family-owned companies.

With Nil-Rate Bands frozen since April 2009 and property values continuing to climb, a growing number of estates and businesses are now being dragged into the IHT net. For business owners, these reforms highlight the importance of reviewing company structures, succession planning and estate strategies before the April 2026 deadline.

Key Inheritance Tax changes affecting business owners from April 2026

From 6 April 2026, this inheritance tax reform will reshape the way estates and businesses are taxed. Business owners should be aware of the following:

• Nil-Rate Bands remain frozen at £325,000 (standard) and £175,000 (main residence) until at least 2029–30, dragging more estates into scope as asset values rise.
• Business Property Relief (BPR) and Agricultural Property Relief (APR) capped:
  • The first £1 million of qualifying assets still receives 100% relief.
  • Any value above £1 million now attracts only 50% relief, leaving the rest exposed to IHT.
• AIM-listed shares move from 100% BPR to just 50% relief, reducing the attractiveness of AIM portfolios as an IHT planning tool.
• From April 2027, unused pensions (funds and death benefits) will also fall within the IHT net, ending a long-standing exemption and creating new liabilities for families and company directors with significant pension pots.

For many owner-managed businesses, these changes mean higher exposure to inheritance tax, reduced relief on company assets, and a need to revisit succession and estate plans well ahead of 2026.

Business Property Relief example – how 2026 IHT changes affect business owners

Consider Jane, a company director whose £1.8 million estate includes:

• A £1.3 million trading business, and
• A £500,000 main residence.

Under the current rules

• The entire £1.3 million business qualifies for 100% Business Property Relief (BPR).
• The £500,000 home is fully sheltered by her combined Nil-Rate Bands (£325,000 standard NRB + £175,000 residence NRB).
• Result: No inheritance tax is due, and her beneficiaries inherit the full estate.

From April 2026

• The residence remains covered by Nil-Rate Bands.
• However, only the first £1 million of the business retains 100% BPR.
• The excess £300,000 attracts just 50% relief, leaving £150,000 exposed to IHT.
• At 40%, this creates a £60,000 tax bill – effectively a 20% charge on the portion above the relief cap.

Summary

This table summarises the impact of the April 2026 Inheritance Tax changes on Jane’s estate:

Scenario	Before April 2026	After April 2026
Estate Value	£1.8m total (£1.3m business + £500k home)	£1.8m total (£1.3m business + £500k home)
BPR Relief	100% relief on the entire £1.3m business value	100% relief on first £1m, 50% relief on £300k
Taxable Amount	£0 – fully relieved by BPR and Nil-Rate Bands	£150k of business value exposed to IHT
IHT Due	£0	£60k (40% of £150k)
Impact	Beneficiaries inherit estate tax-free	£60k tax bill – 20% effective charge on £300k above BPR cap

Looking further ahead

From April 2027, unused pension funds will also be pulled into the IHT net, potentially increasing liabilities for Jane’s heirs.

This example shows how business owners could move from a zero-tax estate today to a significant IHT liability under the new rules – underscoring the importance of reviewing estate and succession planning now.

Expert IHT advice for business owners – plan ahead of 2026 reforms

Many business owners have never had to think seriously about inheritance tax – but with these reforms, that is changing fast. The new rules will impact company directors, family businesses, property portfolios and high-net-worth individuals, creating liabilities that didn’t exist before.

Our team of qualified inheritance tax advisors specialise in owner-managed businesses, limited companies, partnerships and succession planning for entrepreneurs and their families. We deliver tailored strategies to protect business assets, reduce exposure to IHT, and secure efficient succession plans.

With the April 2026 reforms set to bring more estates and businesses into scope, the time to act is now. If you believe your estate or company may be affected, contact us today for expert, confidential guidance on safeguarding your business and family wealth.

 

Inheritance Tax reforms for business owners – Frequently asked questions

What are the key inheritance tax changes in April 2026 for business owners?

From 6 April 2026, BPR and APR are capped so the first £1m of qualifying assets gets 100% relief and any excess gets 50% relief. Nil-rate bands remain frozen and AIM shares move to 50% BPR. From April 2027, most unused pensions fall into IHT.

How does the BPR £1m cap work in practice?

If your qualifying business assets are £1.3m, £1m gets 100% relief and £300k gets 50% relief, leaving £150k chargeable to IHT at 40%. That is a £60k bill, effectively a 20% charge on the £300k above the cap.

Do AIM shares still qualify for Business Property Relief?

Yes, but relief reduces to 50% from April 2026 rather than 100%. Portfolio composition and holding periods should be reviewed.

Will my pension be subject to IHT?

From April 2027 most unused pension funds and death benefits will enter the IHT net. Scheme rules, nominations and potential lifetime gifting or drawdown strategy should be revisited.

Are Nil-Rate Bands changing?

No. The standard NRB remains £325k and the residence NRB £175k, currently frozen until at least 2029-30. With rising asset values, more estates will be pulled into IHT.

What should owner-managed businesses do before April 2026?

Review company structure, share classes, group arrangements, cross-holdings, and any non-qualifying assets. Consider succession planning, shareholder agreements, and potential restructuring to maximise relief within the new cap.

Does BPR apply to all business assets?

No. Investment companies and certain excepted assets may not qualify. Cash balances not required for trade and surplus investments can restrict relief.

How quickly should I act?

Planning, valuations and any restructuring can take months. Aim to complete reviews and decisions well before April 2026, with a follow-up review ahead of April 2027 for pensions.