Preparing for 2026 Reforms to Business and Agricultural Property Relief

Preparing for the 2026 Reforms to Business and Agricultural Property Relief

A recent Times article noted that many business owners and landowners are reassessing their estate planning ahead of reforms to Business Property Relief (BPR) and Agricultural Property Relief (APR), which take effect from 6 April 2026 (The Times, May 2025). These long-established inheritance tax (IHT) reliefs have allowed business and agricultural assets to pass between generations with reduced tax exposure. The upcoming reforms introduce fixed allowances, marking a move toward a more structured and limited system.

With less than a year before implementation, individuals holding business or agricultural assets may wish to review their plans and ownership structures in light of the revised framework.

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BPR and APR: Current Position

Until April 2026, BPR and APR operate as follows:

• Business Property Relief (BPR) provides:
  • 100% relief on unlisted trading company shares or an entire business
  • 50% relief on land, buildings or plant and machinery used in a qualifying business
• Agricultural Property Relief (APR) provides:
  • 100% relief on agricultural property in active use, typically when owner-occupied or let under a qualifying tenancy
  • 50% relief on property with more limited qualifying rights

In both cases, you should have owned and used assets for at least two years. Crucially, there is currently no financial limit on the value that can qualify.

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Key Changes from April 2026

From 6 April 2026, both reliefs will be subject to the following reforms:

• A combined £1 million cap per individual for BPR and APR at 100% relief
• 50% relief for any qualifying business or agricultural assets above the £1 million threshold
• A separate £1 million allowance for qualifying assets held in trust
• APR restricted to UK-based agricultural property; EEA-based land will no longer qualify

These changes shift both reliefs from being open-ended exemptions to capped allowances that must be allocated and managed more deliberately.

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Effective Tax Treatment

Under the new rules:

• The first £1 million of eligible BPR/APR assets per individual will remain fully relieved from IHT
• Any excess will receive 50% relief, with the remaining 50% of that excess added to the taxable estate
• At the current 40% IHT rate, this equates to an effective tax rate of 20% on the value of qualifying assets above the £1 million allowance

For example, if you have £2 million of qualifying assets you wish to pass on:

• £1 million receives full relief
• Of the remaining £1 million, 50% is taxed = £500,000
• 40% of £500,000 = £200,000 IHT due

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Potential Implications

The introduction of a capped model may result in:

• Additional IHT exposure for estates with substantial business or agricultural assets
• A need to consider how you will allocate reliefs between individuals, trusts, and ownership structures
• Greater scrutiny of asset values, documentation, and eligibility

This change may also shift how some individuals view BPR/APR. If you don’t currently own any qualifying assets, you might now see the £1 million cap as an ‘allowance’ to use—similar to your personal allowance, ISA limit, or nil-rate band—which could lead you to take greater interest in relief-qualifying investment opportunities.

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Areas to Review

With time remaining before the changes take effect, the following areas may warrant attention:

1. Trusts

From April 2026, trusts will receive their own £1 million BPR/APR allowance, separate from an individual’s. Used in conjunction with personal allowances, this could allow a couple to shield up to £3 million of qualifying assets. Trusts also continue to offer governance, control, and intergenerational planning benefits.

2. Lifetime Transfers

Making lifetime gifts of qualifying business or agricultural assets may help remove future growth from the estate and start the seven-year clock for Potentially Exempt Transfers (PETs). However, experts have not yet fully confirmed how such gifts will interact with the upcoming BPR/APR caps. You should take any action with professional advice and a clear understanding of your long-term objectives.

3. Ownership Structures

You can review how you hold ownership—through partnerships, shareholdings, or joint arrangements—to help allocate reliefs more efficiently. You can also use “freezer” and growth share structures to direct capital appreciation to younger generations without triggering immediate tax exposure.

4. Spousal Planning

Spousal exemptions remain a useful planning tool. With each spouse eligible for their own £1 million BPR/APR cap and the ability to establish separate trusts, there is scope for structuring assets to make full use of available relief.

5. Investment Considerations

Some individuals may explore BPR-focused investment companies to utilise their relief allowance. These portfolios are designed to meet BPR qualification criteria after a two-year holding period. Certain providers offer solutions tailored to older investors, including policies that provide insurance-backed BPR coverage without medical underwriting for up to two years. These options require careful suitability assessment, particularly around liquidity, investment risk, and fees.

6. Life Insurance

If you expect your estate to exceed the available reliefs, you can use life insurance written in trust as a flexible and cost-effective way to fund any IHT liability. This approach can help to avoid selling business interests or other assets and supports smoother estate administration.

This is an increasingly popular choice among entrepreneurs, offering a practical solution that is often quick to arrange and comparatively low in cost relative to other planning measures.

7. Records and Documentation

HMRC is expected to take a closer look at relief claims under the new framework. Clear, up-to-date documentation—such as business accounts, share registers, partnership deeds, and land-use records—will help establish eligibility and avoid delays or disputes during probate.

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Summary

From April 2026, Business and Agricultural Property Relief will change from open-ended exemptions to capped allowances: 100% relief up to £1 million, and 50% relief thereafter. The changes affect not just business and landowning families, but also those seeking to use these allowances as part of broader tax-efficient planning.

As this framework takes shape, families may benefit from reviewing how assets are held, where reliefs are best allocated, and whether trust structures, insurance, or investment planning can help reduce future liabilities.

While the reliefs remain valuable, they will now need to be managed with greater care and foresight.

Reference: https://www.thetimes.com/business-money/companies/article/inheritance-tax-small-family-firms-3j0t9f7s2

Need more advice? Reach out to our experts:

Anna Warren – Tax Director

anna.warren@bentleyreid.com

Mike Winstanley- Director, Wealth Management

mike.winstanley@bentleyreid.com