Business Property Relief (BPR) has long played a key role in helping business owners reduce potential Inheritance Tax (IHT) liabilities.

However, in the 2024 Budget it was confirmed that BPR will change significantly from 6 April 2026.

With this deadline approaching, now is the time to understand how BPR currently works, what is set to change, and how you can make the most of the limited opportunity to transfer BPR qualifying assets into a trust without creating an immediate IHT liability as part of wider estate planning.

Using a trust to manage and reduce Inheritance Tax exposure

When assets are placed into a trust, they are no longer treated as part of your estate for Inheritance Tax (IHT) purposes, provided you (the settlor) survive for seven years after the transfer.

This means that the total value of your estate is reduced, which in turn lowers the IHT payable on death.

A trust also allows you to maintain control over how and when beneficiaries receive funds, while offering protection against potential future risks such as divorce or bankruptcy.

Understanding the current BPR rules

BPR applies to shares in unquoted trading companies, sole traders and interests in partnerships or LLPs. It works by exempting the value of qualifying business interests from Inheritance Tax (IHT).

At present, there is no limit on the value that can be sheltered under BPR, and the relief applies to IHT charges arising both on death and during lifetime transfers.

Upcoming changes to Business Property Relief from April 2026

From 6 April 2026, BPR will still cover the same types of qualifying business interests. However, the maximum value eligible for full exemption will be capped at £1,000,000 per individual.

Any value exceeding this £1,000,000 limit will still qualify for partial relief, with 50% covered by BPR. The relief will continue to apply to Inheritance Tax (IHT) charges both on death and during lifetime transfers, such as when creating a trust.

The following example shows how these changes could affect future tax planning.

Example: The impact of BPR changes when settling a trust

Imagine an individual holding £10,000,000 in shares of an unquoted trading company who wants to place the entire amount into a trust for their family. The shares meet all the conditions to qualify for full BPR.

Where assets are transferred into a trust, any amount over the individual’s nil rate band of £325,000 is subject to a lifetime Inheritance Tax (IHT) charge at 20% (where the trust is liable for the tax).

Under the current BPR rules, with no limit on the value that can be fully exempt, transferring the full £10,000,000 shareholding into a trust before 6 April 2026 would not create a lifetime IHT liability, as illustrated below:

Settling the same £10,000,000 of shares into a trust after 6 April 2026 would result in a much higher lifetime IHT charge, as set out below:

The changes to BPR taking effect from 6 April 2026 will substantially raise the IHT payable on transfers of business assets into trust.

Actions to consider

The upcoming changes to BPR are set to increase Inheritance Tax (IHT) exposure for many business owners. However, there is still a short window of opportunity before 6 April 2026 to transfer qualifying business assets into a trust without triggering a lifetime IHT charge.

Need help with Business Property Relief (BPR)?

If you’d like expert guidance on whether your shareholding qualifies for BPR, or support in creating a trust that aligns with your wider wealth planning goals, contact the Menzies LLP team today.

Website: www.menzies.co.uk 

Email: advice@menzies.co.uk