Saving inheritance tax with business relief. What’s changing and should you act now?

Business relief (BR), previously known as business property relief (BPR), is a form of inheritance tax (IHT) relief that can reduce the taxable value of qualifying business assets by either 100% or 50%, depending on the type of asset.

It was originally introduced to ensure that family businesses could be passed down without being broken up to pay an IHT bill, but today it is also used as a tax mitigation tool to help encourage investments into businesses.

To qualify, the assets must be held for at least two years and still be held at the time of death. BR can apply to shares in qualifying businesses, including those listed on the Alternative Investment Market (AIM) and to certain unlisted business assets.

For people who are likely to leave behind a significant estate (and associated IHT bill), BR can be a powerful tool to reduce or even eliminate IHT liabilities on certain business assets. For example, if £1 million is invested in BR-qualifying assets and held for two years, that amount can be passed on free of IHT, which could potentially save up to £400,000 in tax.

It’s important to note that BR-qualifying investments are considered very high risk. They do not typically generate income and liquidity can be limited. It’s important to note that if you make a BR-qualifying investment, your capital is at risk and could be lost entirely. Investments in unquoted companies or those quoted on the AIM can fall or rise more sharply than shares in larger companies listed on the main market of the London Stock Exchange (LSE) and may be harder to sell.

Although BR is not suitable for everyone, it could be recommended for:

• People who have already undertaken and exhausted basic IHT planning, such as making financial gifts and insuring their IHT liability
• Those who do not wish to or who are unable to gift assets during their lifetime due to age (and could be subject to the seven year inheritance tax rule), health, or other financial needs
• Individuals with sufficient income and cash reserves to cover living expenses, capital spending plans and emergencies
• Business owners who have sold their trading shares and wish to maintain BR eligibility

If you’ve sold a qualifying business, you have a three-year window to reinvest the proceeds into other BR-qualifying assets and retain the IHT exemption. This is a valuable opportunity for those looking to preserve their estate’s tax efficiency post-exit.

Consider a client in their late 80s who had already explored other IHT planning options. They were reluctant to gift assets due to concerns about care costs and were ineligible for life insurance to pay their IHT bill due to their age. They had surplus income to meet their day-to-day outgoings and retain a suitable amount of cash funds.

Over six years, they gradually invested in BR-qualifying assets through multiple providers, spreading risk and reinvesting capital as it became available and taking advantage of rights issues. A rights issue is a way for a company to raise capital by offering existing shareholders the opportunity to buy additional shares in proportion to their current holdings. Shareholders can choose to take up the offer or not. The benefit of a rights issue is that the purchase of the shares takes place as if they were purchased on day one. As an example, if the shares you own are already qualifying (having been held for two years) the rights issue shares you buy are immediately qualifying too.

By the time of their death, their BR portfolio had grown to £1.2 million, resulting in an IHT saving of £480,000.

This strategy allowed them to retain access to their capital while significantly reducing their estate’s tax liability and passing more wealth to their family.

As announced in the Autumn Budget 2024, from 6 April 2026, new rules will cap the amount of BR-qualifying assets that can be passed on tax-free at £1 million per person. Any value above this threshold will still benefit from a reduced IHT rate of 20%, rather than the standard 40%, but this represents a significant shift in how BR is applied. All tax reliefs are subject to change, investments may lose their qualifying status, and whether you qualify for tax relief will depend on your personal circumstances and these may change in the future.

With the upcoming changes to business relief allowances, now could be a good time to review your estate planning strategy. Whether you’re an individual looking to reduce your IHT liability or a business owner planning your next steps post-sale, BR could be a valuable part of your financial toolkit.

If you’d like to talk about BR for you or a family member and explore your options, speak to your usual Evelyn Partners contact or book an appointment online.