Significant changes to Business Property Relief (BPR) and Agricultural Property Relief (APR) are set to take effect from 6 April 2026 following the Finance Act 2026. The legislation introduces a cap on the 100% relief rate for Inheritance Tax (IHT), impacting estate planning for business owners, farmers, and investors in AIM-listed shares. [1, 2, 3]
Key BPR Legislation Changes (From 6 April 2026)
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- £2.5 Million Cap on 100% Relief: The 100% rate of BPR and APR will be capped at a combined total of £2.5 million of qualifying assets per person.
- 50% Relief Above the Cap: For the value of assets exceeding £2.5 million, the relief rate will be reduced to 50%. This means a 20% effective inheritance tax rate will apply to the value above the threshold.
- Transferable Allowance: Unused parts of the £2.5 million allowance can be transferred between spouses and civil partners, allowing for a combined allowance of up to £5 million on the second death.
- Index-Linking: The £2.5 million allowance will be adjusted for inflation starting from 6 April 2031.
- AIM and Listed Shares: Shares not listed on a recognised stock exchange (including those on the Alternative Investment Market – AIM) will generally receive 50% relief. [1, 2, 3, 4, 5]
Impact on Estate Planning
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- Higher IHT Exposure: Estates with significant business or farm assets exceeding £2.5 million will likely face higher inheritance tax liabilities.
- Revising Wills: Couples may need to restructure wills to ensure maximum utilization of the transferable allowance.
- Asset Management: The changes may prompt investors to reconsider portfolios heavily reliant on AIM/EIS shares for tax relief.
- Reviewing Structure: Business owners might review ownership structures or gift assets earlier to manage the potential liability. [1, 2, 3]
These reforms apply to transfers made and estates on death from 6 April 2026, amending the Inheritance Tax Act 1984
