Protecting your business legacy: How the April 2026 Business Relief changes to inheritance tax affect you

Significant reforms to Business Relief (BR) and Agricultural Relief (AR) will impact inheritance tax (IHT) planning for entrepreneurs and business owners from April 2026.

Estates may face considerably higher tax liabilities, warranting a reassessment of succession strategies.

What’s Changing from April 2026?

• £1 Million Cap on 100% Relief: The first £1 million of qualifying business or agricultural assets will continue to receive 100% IHT relief. Anything above that threshold will only qualify for 50% relief, effectively exposing the excess to a 20% IHT charge.
• AIM Shares: Investments in AIM-listed companies, which previously qualified for 100% relief, will only receive 50% relief and the £1 million allowance will not apply to these holdings.
• Trusts: The £1 million allowance also applies to trusts. Anti-fragmentation rules will apply if multiple trusts are created after 30 October 2024, meaning the allowance will be divided among them. 10% entry charges and ongoing 3% ten-year charges will be applicable for qualifying business assets.
• No Transferable Allowance: The £1 million allowance is not transferable between spouses (an odd departure from longstanding IHT planning principles).
• Anti-Forestalling Measures: Lifetime transfers / gifts made from 30 October 2024 will be subject to the new regime if the donor dies on or after 6 April 2026, within seven years of the gift.

What Is the Government Hoping to Achieve?

The Government’s goal is to raise additional tax revenue and limit what it sees as overly generous reliefs that have benefited wealthy business owners and large estates.

While official forecasts are still being debated, the Office for Budget Responsibility (OBR) at the time of the budget said the projected revenue from the changes to APR and BPR would be £500 million by 2029/30.

The profession, including from Institute of Chartered Accountants in England and Wales (ICAEW), has raised concerns that the £1 million allowance is too low and will affect many more businesses and farms than intended, resulting in real economic harm.

Accounting Principles: Why They Matter

Excepted Assets

Not all assets held within a business qualify for BR. Assets that are not required for the business’s trade, such as surplus cash, investment portfolios, or personal-use property, can be excluded from the relief. This is determined by examining the balance sheet at the time of a relevant event (for example on death).

If a significant portion of a company’s balance sheet consists of excepted assets, the value eligible for relief may be substantially reduced, and more of the estate could be subject to IHT at the full 40% rate.

Holding Company Structures

Not all businesses are simply operated through a single company, and a family’s interests may be solely represented by shares in a holding company structure. For BR to apply, a holding company must be wholly or mainly holding shares in trading subsidiaries.

If a holding company’s activities or assets tip the balance toward investment rather than trading, BR may be denied for the entire structure. The “wholly or mainly trading” test will continue to apply, and the presence of non-qualifying investments or excepted assets could jeopardise relief for the entire group where these are not structured optimally.

What Should Business Owners Do?

• Review Asset Composition: Scrutinise the business balance sheet for potential excepted assets and consider whether surplus cash or investments can be justified as needed for the trade.
• Assess Group Structures: Review holding companies and subsidiaries / associate companies and consider restructuring for optimisation.
• Plan for Trusts: If trusts are part of your succession planning, understand how the new anti-fragmentation rules and principal charges will affect your arrangements and what actions you can take before 6 April 2026.
• Consider Cash Flow: If your business is asset-rich but cash-poor, your heirs may need to sell assets or borrow to pay the tax – plan for liquidity.
• Get Professional Advice: The rules are complex, especially for larger group structures, trusts and multi-generational holdings. Early, tailored advice is essential.

Edwin Coe’s opinion

The April 2026 reforms are a significant upheaval for business succession and IHT planning. The days of unlimited 100% relief on business assets are likely to be over. For many, this means higher tax bills and tougher decisions about how and when to pass on the family business. Those who act early, get expert advice, and plan with the new direction of travel in mind will find themselves in a more favourable position.

At Edwin Coe, we’re here to assist you with inheritance tax planning, helping you to navigate these uncertain times and secure your family’s future.

Don’t wait for April 2026 to start the conversation. There are steps that in the right circumstances could and would have to be taken before then.  The future of your business and your family’s legacy may depend on it. Please contact any member of our Tax or Private Client teams.