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.