£1.5m increase to IHT Business Relief from 6 April 2026

On 23 December 2025 the UK Government announced a change to its new cap on the amount of Business Relief (BR) available from Inheritance Tax (IHT) applying from 6 April 2026, increasing this cap from £1m to £2.5m.

A similar cap increase will also apply to Agricultural Relief.

Summary of BR

BR is a relief from IHT which is available when “relevant business property” is transferred either during lifetime or on death. It can be a valuable relief to family and owner-managed businesses who might otherwise incur significant IHT on their businesses.

Until 5 April 2026 BR is available at a 100% rate on transfers of:

• a sole trade or partnership interest
• unquoted securities giving control
• unquoted company shares

BR is available at a 50% rate on transfers of:

• quoted shares or securities giving control
• land / buildings / machinery / plant used by a company controlled by the transferor or by a partnership of which they are a partner

The amount of qualifying business assets covered by BR up to 5 April 2026 is unrestricted. Therefore if a business qualifies for 100% BR then it would attract nil IHT, and a business qualifying for 50% BR would attract 20% IHT (50% of the standard 40% IHT rate).

BR can be restricted where there is dealing in stocks or shares, dealing in land, a winding up order in place, a binding contract for sale in place or excepted assets in the business.

A qualifying business asset needs to have been owned for at least 2 years for BR to be available.

BR has generally been seen as a welcome and valuable relief from IHT, intended to allow family and owner-managed businesses to pass on between generations or to new shareholders without crystallising potentially significant IHT charges (requiring cash to fund) on the transfers.

Changes announced in the Chancellor’s 2025 Budget

In the Chancellor’s Budget on 26 November 2025 it was announced that the 100% rate of BR would from 6 April 2026 only apply up to a cap of £1m, with any excess attracting relief at a 50% rate.

Businesses and business assets qualifying for the 50% rate are unaffected.

A qualifying business (or shareholding) with a value less than £1m could therefore continue to attract full IHT relief through 100% BR. However, business interests valued in excess of this amount would attract some IHT at a rate of 20%. While still less than the standard 40% IHT rate, an increase from nil to 20% represents a significant IHT uplift.

The £1m BR allowance would be transferable between spouses, meaning a married couple could potentially have £2m relief from IHT between them on a qualifying business.

Further change announced on 23 December 2025

The previously announced £1m cap was then announced to be increasing to £2.5m, and would still be transferable, meaning that married couples / civil partners could potentially have a £5m allowance between them.

What does this mean for businesses and business owners?

The changes to BR from 6 April 2026 represent one of the most significant changes in the scope of IHT in recent memory, and many business owners may suddenly find themselves with a new tax burden to plan for.

Business owners may wish to consider:

• Are there any planning options to undertake now, to bank existing available BR by 5 April 2026? This may include consideration of lifetime gifting or use of a family, or other, trust, depending on the specific requirements of each business and individual;
• Even if planning opportunities are reduced after 6 April 2026, are there still opportunities for lifetime gifting, either directly or into trust?
• What does the future ownership structure of the business look like in the longer term?
• Clients who may not want their business to pass to the next generation (perhaps because there are no children, children have not become involved in the business etc.) may instead wish to consider whether a sale of the business is an attractive option, or whether management incentives could be used to transfer ownership to employees.
• Are  growth shares an appropriate option for passing capital growth to the next generation, and what are the tax considerations beyond IHT?
• Is there are capital gains tax (CGT) exposure on the business / company, and what would be the interplay between crystallising CGT to try and save IHT?
• Are  there sufficient funds to pay the tax? Is an instalment or payment plan worth considering?
• Are wills up to date to reflect the wishes of the business owners for transfers on death?

Potential impact of the BR changes – an illustrative example

A private limited company with a manufacturing trade, owned 50% each by Mr and Mrs A, is worth £20m.

Up to 5 April 2026, Mr and Mrs A could expect their £20m business asset to attract full (100%) BR, meaning no IHT would be due on it.

From 6 April 2026, Mr and Mrs A between them would only qualify for £5m BR, leaving £15m of the company’s value exposed to IHT at a rate of 20%.

Overnight on 5 April 2026, Mr and Mrs A would see their IHT exposure on their business potentially increase from zero to £3m (before consideration of other aspects of their estate).

Mr and Mrs A would therefore be well advised to review the IHT exposure on their business and what practical steps they could take to mitigate this.

They could revisit their previous plans for exiting the business, which they had been planning to keep in their names until death on the assumption they would get full BR.

They could consider gifting some or all of their shares, either directly to their children or into trust for their children’s benefit, and they have the option of planning for such transfers before and after 5 April 2026.

Transferring some of their shares, with the result that Mr and Mrs A retain only a minority shareholding, could also impact the value of the shares in their estate, as a minority discount may then apply. This could have the effect of reducing some of their IHT exposure. 

Mr and Mrs A could even just continue to hold their company shares as originally planned, and look into options for insuring the IHT exposure.

Conclusion

The changes announced in the Chancellor’s 2025 Budget represent a significant upheaval in how IHT is applied to UK businesses from 6 April 2026.

While increasing the £1m BR cap to £2.5m (£5m for married couples or civil partners) is a welcome change, there will still be significant numbers of family-run and owner-managed businesses who will be impacted and exposed to IHT charges after 6 April 2026, and who will need to consider or reconsider their IHT and succession planning.