Relief Limits for Business Property Increased - But Beware the Inheritance Tax 'Trap'
- TBA
- 4 days ago
- 5 min read
Back in December 2025, the government announced an increase in the inheritance tax tax-free allowance for Business Property Relief (BPR) from the original £1 million to £250,000.
As this allowance applies to both individuals and trustees, this policy change has immediately created new scope for thought regarding the planning of corporate shareholding structures.
Is it possible to fully utilise the £250,000 tax-free allowance for each person by splitting equity and introducing multiple shareholders, thereby achieving a better arrangement regarding Inheritance Tax (IHT)?
From a tax perspective, this may be an important opportunity for businesses to achieve intergenerational succession and preserve family wealth.
However, from the perspective of corporate governance and operational stability, matters are far from being that simple.
What is business property relief?
The core function of Business Relief is to reduce the taxable value of a business or relevant assets when calculating Inheritance Tax.
Under the Inheritance Tax framework, any business ownership or share in a business is included in the total estate. However, if conditions are met, a value reduction of 50% or 100% can be enjoyed.
These reliefs apply to both lifetime transfers and inheritance through testamentary arrangements. Through this mechanism, family businesses can avoid being forced to sell assets due to high Inheritance Tax during the succession process, thereby ensuring the continued operation of the business.
Which assets qualify for 100% or 50% relief?
According to UK Inheritance Tax regulations, different types of business assets are subject to different relief rates:
Assets eligible for 100% BPR
The business itself or an interest in the business (e.g. a share in a partnership);
Shares in unlisted companies (private companies).
Assets eligible for 50% BPR
Controlling shares holding more than 50% of the voting rights in a listed company;
Land, buildings, or machinery owned by the deceased and used in a business in which they were a participant or controller;
Land, buildings, or machinery held by a trust where the business has the right to benefit and it is actually used for operations.
It is particularly important to note that the relevant business or asset must have been held for at least two years prior to death to qualify for relief. This holding period requirement is an important prerequisite for auditing relief eligibility.
Which situations do not qualify for relief?
Business Property Relief does not apply to all companies or assets. The following situations generally do not qualify:
Ineligible situations at the company level
The company is mainly engaged in dealing in securities, stocks, land, or buildings;
The company's main business is holding investments or earning investment income;
The company is a non-profit organisation;
The company is being sold and will no longer continue to operate after the sale (unless the estate mainly receives consideration in the form of shares in a successor company);
The company is being liquidated, and the liquidation is not for the purpose of ensuring the continued operation of the business.
Ineligible situations at the asset level
Assets that simultaneously meet the conditions for Agricultural Property Relief (APR) (Business Property Relief cannot be claimed twice);
Assets that were not mainly used for commercial purposes within the two years prior to death;
Assets that are not necessary for the future operation of the business.
However, if a part of an asset is used for business operations, that part may still qualify for relief.
For example, if one room in a building is used for a shop while other rooms are used as a private residence, the shop portion can enjoy Business Property Relief, while the residential portion does not qualify.
As an executor or administrator of an estate, you can apply for Business Property Relief when valuing the estate. When applying, you must submit the IHT400 Inheritance Tax account along with Schedule IHT413 (Details of business or partnership interests and assets).
If the 50% relief applies, the calculation must be based on the market value of the business or asset. Assets for which relief can usually be claimed include real estate and buildings, shares in unlisted companies, and machinery used for business operations.
Beyond tax optimisation: can the business operate steadily?
For many family businesses, saving on Inheritance Tax is often a matter of whether the business can be passed on smoothly and avoid the forced sale of assets to pay tax.
Therefore, dispersing holdings through a multi-shareholder structure to amplify the BPR tax-free allowance seems logical.
However, before making a decision on equity restructuring, business owners must first answer several fundamental questions:
Can the daily operations of the company still make decisions efficiently?
On key strategic matters, will multiple shareholders increase decision-making resistance?
Does the founder still hold a majority stake to maintain control?
If the founder still holds an absolute majority stake, a multi-shareholder structure usually does not pose an immediate obstacle to decision-making. However, an often-underestimated risk lies in the potential influence of minority shareholders.
Underestimated power: the 'bargaining chip' of minority shareholders
In private companies, minority shareholders are usually in a weak position. They cannot influence company decisions alone and often lack liquidity, making it difficult to exit by selling their shares.
Precisely for this reason, Section 994 of the UK Companies Act 2006 grants minority shareholders an important right: if they suffer 'unfair prejudice', they can bring a claim to court.
Once the court determines that unfair prejudice does indeed exist, the most common remedy is to order other shareholders or the company to buy back their shares at 'fair value'.
On the surface, this seems like a reasonable exit mechanism. In reality, however, 'unfair prejudice' litigation itself often causes a significant impact on the business.
The view from TB Accountants
Overall, the new £250,000 Business Property Relief (BPR) allowance provides an important opportunity for some businesses to preserve value during intergenerational succession.
By reasonably allocating equity so that multiple entities can respectively utilise the tax-free allowance, it is indeed possible to significantly enhance tax efficiency.
However, business owners must clearly recognise that tax optimisation is only one part of succession planning. What truly determines whether a business can endure across generations is a robust corporate governance system and healthy shareholder relationship management. Great enterprises are able to last because they have established strong and stable corporate ecosystems.
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