Have you ever had concerns about inheritance tax preventing your business from functioning and ultimately closing down?
Business property relief for IHT exists to protect your company. However, specific criteria must be met to qualify for said relief.
Read our guide that explains this in more detail, including key business property relief changes expected to come into effect in 2026.
What is business property relief?
Business property relief (BPR) was initially introduced in 1976 to support companies’ operating without the need to sell assets to pay inheritance tax (IHT).
Today, BPR is a UK IHT that facilitates business owners passing on business assets either during their lifetime or upon death with reduced or no IHT liability.
The main objective of business property relief is stopping families being put in a position to sell their businesses to pay an IHT bill. Key elements include:
- Rate of relief: Depending on the type of property, business property relief typically offers IHT relief at rates of either 50% or 100% of the value of the business assets.
- Ownership period: Generally, the business property must have been owned by the transferor for up to two years immediately before the transfer or death.
- Qualifying business: It must be a trading business. Not one involved in investments, land, or buildings.
- Excepted assets: The value of assets not used for business purposes. For example, additional cash not needed for future use is excluded from business property relief.
What qualifies for business property relief
As previously mentioned, the asset must have been owned for at least two years prior to a death or transfer, and the business must be trading, not investing.
If you own the following, you’ll be eligible for business property relief:
- A trading business or an interest in partnership
- Shares in an unlisted trading company
- The land, buildings or machinery that are part of your business
There are also qualifying scenarios, for example:
- When business assets are transferred in as part of an estate following death
- Gifts or transfers into trusts during your lifetime
- Trustees of settled business property could qualify for business property relief depending on periodic and exit charges
Rates of business property relief
For IHT purposes, BPR decreases the value of a gift of ‘relevant business property’. It’s only available for qualifying business assets, and depending on its type, the relief will be 100% or 50%.
A relief rate of 100% will be applied to:
- A whole business or an interest in a business, including sole traders, partnerships, or a share in a partnership.
- Shares in an unlisted company (not listed on a recognised stock exchange). This includes shares traded on the alternative investment market (AIM)—these shares will receive 100% relief if certain requirements are met and the company is trading.
A relief rate of 50% will be applied to:
- Land, buildings or machinery used in a business
- Shares in quoted companies where the deceased had more than 50% voting rights
- Property or equipment held in trust that’s used by a business
Changes to business property relief
Following the 2024 Autumn Budget, the government announced key amendments to business property relief:
- Assets qualifying for 100% BPR capped at £1 million—shared with agricultural property relief (APR).
- Assets exceeding £1 million will qualify for 50% relief, which is taxed at 20% effective (half of the 40% main rate of IHT).
- Irrespective of value, AIM-listed shares will only be eligible for a rate of 50%
- The £1 million allowance applies per estate and cannot be transferred between spouses or civil partners
FAQs: Business property relief: An overview
What is the main purpose of BPR for business?
It’s to help family-owned or private businesses continue trading without having to sell off assets, or the business, to afford a IHT bill.
Does my business qualify for BPR?
So long as they’re actively trading, most private limited companies, limited liability partnerships, and sole traders may qualify. The business must satisfy to the HMRC that they’re “wholly or mainly” trading. This means less than 50% of its activities can be investments.
How long do I need to own the assets for them to qualify?
Invariably, the assets must have been owned by the transferor for two years immediately before the transfer or death.
What are “excepted assets” and how do they affect my claim?
Excepted assets are items within the business that aren’t used wholly or mainly for business purposes within the last two years. It also includes things not used for future use, like surplus cash or personal investments.
Final say: Business property relief: An overview
With an express intention to help family-owned businesses, business property relief for IHT provides a reprieve for many companies throughout the United Kingdom.
However, there are several conditions to be aware of to qualify for relief—and this will determine the percentage you’ll receive.
Do you need further business property relief advice?
Changes to business property relief resulted from the 2024 Autumn budget. And whilst they don’t come into effect until April 2026, you may have concerns.
If that’s the case, Peninsula’s experts are ready to answer your questions and use their experience to assist your business.
Let us solve your company’s challenges. Partner with Peninsula.
Interested? Request a call back here.
