New inheritance tax rules for family businesses

On 23 December 2025, the government announced important changes to the planned reforms of Agricultural Property Relief (APR) and Business Property Relief (BPR) for inheritance tax (IHT).

From 6 April 2026, the full 100% relief allowance will be set at £2.5m per person rather than the £1m proposed earlier in 2025. Because any unused allowance is transferable between spouses and civil partners, couples will be able to protect up to £5m of qualifying agricultural or business assets from IHT at 100% relief, on top of the existing nil rate bands. Above the allowance, 50% relief will apply.

What has changed – and what has not

• The government’s original proposal introduced a single £1m allowance for 100% APR/BPR, with 50% relief above that. Ministers have now confirmed the 100% relief allowance will instead be £2.5m per person, reducing the number of affected estates and easing the impact on family businesses and farms. This will be legislated for by amending the Finance Bill 2025-6 and will take effect from 6 April 2026
• The existing IHT nil rate band (£325,000) and residence nil rate band (£175,000) remain fixed until the 2030–31 tax year. The residence nil rate band continues to taper for estates over £2m. These thresholds sit alongside APR/BPR and can be used in addition to the new £2.5m relief allowance
• On 28 January 2026, the House of Lords’ Economic Affairs Committee published their recommendations for the Finance Bill 2025-6. Importantly, they advocated for an extension to the deadline for the payment of IHT from 6 to 12 months following a death. We wait to see whether this change will be adopted, but this would provide further time for families to address liquidity problems
• Other elements of the APR/BPR reform package continue. These include extending the option to pay IHT in equal annual instalments over 10 years, interest free, to all property eligible for APR/BPR; and reducing BPR from 100% to 50% for certain shares admitted to trading on recognised stock exchanges that are designated as ‘not listed’. The December announcement did not change the treatment of AIM shares.

What this means for family business owners

The increase from £1m to £2.5m per person (and up to £5m for couples) for 100% relief represents a significant softening of the earlier proposals. Many owner‑managed companies and family farms should now find that all, or a larger proportion, of their qualifying trading assets fall within the full relief allowance, with any excess still receiving 50% relief.

In practical terms, this reduces exposure to IHT at the standard 40% rate and can improve inter‑generational succession planning.

It’s still crucial to test whether assets qualify. APR/BPR turns on the nature of the activity (genuinely trading rather than mainly investment), the type of property (for example, shares in unquoted trading companies) and the ownership period. Where portfolios include shares admitted to trading on recognised exchanges but designated ‘not listed’, only 50% BPR will apply under the new rules, which may justify rebalancing or restructuring before April 2026.

Practical steps to consider now

• Review your estate against the £2.5m allowance (or £5m for couples) to see how much may qualify for 100% relief and how much may fall into the 50% band. Factor in the additional protection of the frozen nil rate bands where available.
• Review your wills to ensure your estate is being passed on in the most tax efficient manner. There are strategies to ensure reliefs are being crystallised and tax allowances maximised.
• Revisit shareholdings and corporate structures. If you hold assets in the ‘not listed’ category on recognised exchanges, consider whether there are commercially and tax‑efficient alternatives that meet your risk profile and business goals
• Plan for liquidity. Even with enhanced reliefs, some tax may still arise. The extended, interest‑free 10‑year instalment option for APR/BPR‑eligible property can support cash‑flow planning as part of succession
• Keep timing in mind. The new £2.5m allowance applies from 6 April 2026. Estates where death occurs before that date will be assessed under the pre‑reform regime. Review wills, shareholder agreements and family trust arrangements with that date in mind.

In summary

For many family business owners, the December announcement provides greater protection from IHT on qualifying trading assets – up to £2.5m per person at 100% relief, with 50% relief thereafter – while leaving the broader IHT thresholds unchanged and frozen.

Used alongside careful structuring and the existing nil rate bands, the revised regime can support smoother, more tax‑efficient succession.

As always, the outcome will depend on your business profile and family circumstances, so tailored advice is essential.