For decades, founders of qualifying trading businesses could pass their company to the next generation free of inheritance tax. Business Property Relief made that possible. From 6 April 2026, that changed. A cap now applies. For the first time, a successful business can generate a significant IHT liability — and many founders haven't factored that into their planning.
What Business Property Relief Is
Business Property Relief — now often shortened to Business Relief — is the inheritance tax relief that protects qualifying business assets. For shares in unquoted trading companies, the relief has historically been 100%. That meant a company worth £5 million, £10 million, or £20 million could pass to the next generation entirely free of inheritance tax, provided the qualifying conditions were met.
The qualifying conditions remain unchanged. Your company must be mainly trading — not an investment vehicle. You must have owned the shares for at least two years. And the shares must qualify under the relevant rules. None of that has moved.
What changed is the amount of value those rules can protect.
What Changed on 6 April 2026
From 6 April 2026, a £2.5 million cap applies to the combined value of qualifying business and agricultural property that can receive 100% relief. This is a single shared pot — not £2.5 million per asset type.
Above that threshold, qualifying assets still receive relief — but only at 50%. On a 40% IHT rate, 50% relief produces an effective tax charge of 20% on the excess.
In plain terms:
- First £2.5 million of qualifying business assets: 0% IHT
- Value above £2.5 million: 20% IHT
A founder holding a company worth £4 million faces an IHT bill of £300,000 on the excess above the cap — on a business that, before April 2026, would have passed to their family completely free of inheritance tax.
How the Cap Works in Practice
The £2.5 million cap is not a lifetime limit. It applies on a seven-year look-back basis for lifetime gifts, in the same way the nil-rate band does. Unused allowance can be transferred to a surviving spouse or civil partner, meaning a couple could potentially shelter up to £5 million of qualifying business value at 100% relief combined — before other allowances such as the nil-rate band reduce the bill further.
The cap is fixed at £2.5 million until April 2031, after which CPI indexing is planned.
One important point: the relief still applies. A founder with a £3 million business faces 20% IHT on £500,000 — a £100,000 bill. That is not nothing, but it is significantly less than the 40% that would apply without BPR. For most founders, BPR remains the single most valuable IHT relief available. The change is that it is no longer unlimited.
What This Means for Founders Building Valuable Businesses
The change matters most for founders whose businesses are already worth more than £2.5 million — or who expect them to be by the time they pass them on.
It also changes the relationship between exit planning and succession planning in ways that weren't previously relevant. A founder who sells their business removes the BPR question but introduces a different one — the proceeds sitting in their estate are no longer a qualifying business asset. A founder who holds the business until death may now face an IHT charge that didn't previously exist.
These two planning decisions — when to exit, how to structure the business, and how to manage what's in your estate — now interact more directly than they ever did before.
What Founders Should Review Now
This isn't an emergency — but it is a planning prompt. The right time to review is now, not when succession becomes urgent.
- Understand your current position. What is your business roughly worth? How does that compare to the £2.5 million cap? If your company is valued above the threshold, quantify the potential IHT exposure.
- Check how the cap interacts with other assets. The £2.5 million pot is shared between BPR and Agricultural Property Relief. If you hold both qualifying business and agricultural assets, they compete for the same allowance.
- Review your will and succession plan. Many founders' wills were written assuming unlimited BPR. If yours was, it needs revisiting.
- Consider your spouse's position. Unused BPR allowance is transferable on death. Understanding the combined position matters for couples who own the business together or separately.
- Factor this into exit timing conversations. If you're planning an exit in the next five to ten years, the interaction between BPR, CGT, and IHT is now more complex than it was. These conversations are worth having early.
For the full detail on the changes, see HMRC's guidance on Business Relief.
The cap on Business Property Relief is one of the most significant changes to IHT planning for business owners in a generation. It doesn't make passing a business to the next generation impossible — but it does make planning for it essential in a way it wasn't before.
If you'd like to understand how the changes affect your position, speak to a Runway co-founder.
