The changes to BPR will have significant repercussions for those with business interests that will pass on to loved ones on death. Valuing your business interests correctly is important, both in terms of lifetime tax planning and for your estate.

Under the current regime, if you’re able to determine that BPR will apply to your business interests in full, at the 100% rate, then establishing the value of your interest may not have been such a great concern. However, with changes proposed to take effect from April 2026, that is likely to change. 

What happens after the anticipated changes to BPR are introduced?

From April 2026, there will be a £1m limit on the value of qualifying assets which attract relief at 100%, with the remainder relieved at 50% (giving an effective IHT rate of 20%).

During an individual’s lifetime, the £1m BPR allowance will renew every seven years, much like the nil rate band with Chargeable Lifetime Transfers (CLT) to a trust.

When Utilising your Nil Rate Band to minimise Inheritance Tax on death, any outright gifts or potentially exempt transfers (PETs) made in the previous seven years, will also be considered in determining the available £1m allowance. If you were to die within seven years of having made a gift/transfer of business property on or after 30 October 2024 (the date on which this change was announced) and the recipient still holds the shares at the date of death, it would be seen as a failed PET/CLT. Any amounts over the £1m allowance will therefore potentially be subject to Inheritance Tax (IHT) at an effective rate of 20% (as the assets qualifying for BPR would only be eligible for relief at a rate of 50% for amounts over £1m after 6 April 2026). 

Example

If John died in March 2026 with an interest of £2.5m in shares of an unquoted company, there would be no IHT liability as this would qualify for 100% BPR. However, if he died in May 2026, only the first £1m of these assets would qualify for 100% BPR. The remaining £1.5m would only qualify for BPR at 50%. This means that there would be an IHT liability of £300,000, before the application the nil-rate band or any other exemptions, giving an effective IHT rate of 12%, as illustrated below.

How will an independent valuation help?

Planning now, before the changes, should be considered, given the potential savings in cases where there is a likelihood of surviving any transfer by seven years or more. Understanding the value of your business interest will be key part of the options considered when Planning for the changes to Business Property Relief. The value of your business would be an important factor in any decisions you may take before the changes take effect, such as a possible transfer to a trust, or indeed an absolute transfer during lifetime, as the value will drive the potential exposure to tax. The valuation would also, of course, be crucial when deciding on the level of any life insurance you may consider taking out, as the potential exposure will be required for determining the level of cover. 

In addition, an independent valuation may help in determining roughly how much someone may wish to gift through lifetime transfers. Of course, business value unavoidably changes over time, however, having a sensible appreciation of the business value at any point in time provides useful information when it comes to tax liabilities.

A valuation is also far more likely to be necessary upon death to assess the value of the deceased’s estate, as this will impact the IHT charge from 6 April 2026 in instances whereby it did not before. There may also be other probate valuation considerations for non-quoted shareholdings. Going forward, the valuation of a business will therefore have a direct impact on the IHT liability on death.

Equally, any post-6 April 2026 planning will also require reliable valuations in order to establish the proportion of a business interest which may be transferred without a lifetime tax charge. 

Getting independent guidance will also, in most cases, be essential for various reasons – not least that, by seeking independent external guidance, a business owner or Personal Representative (PR) will be able to document that they have taken reasonable steps to obtain an appropriate valuation of their business interests. 

Furthermore, business valuation can be a rather technical matter, with numerous methodologies varying in complexity and which typically require access to proprietary market information. Experience of performing such work – and working with HMRC in valuation matters – can add significant value in the long run.