Inheritance tax & business property relief

BLP.17 — Inheritance Tax & Business Property Relief

Statute: Inheritance Tax Act 1984 (IHTA 1984). IHT bites on the death estate, failed PETs (potentially exempt transfers within 7 years of death) and chargeable lifetime transfers (CLTs, e.g. gifts into most trusts — 20% lifetime, 40% on death within 7 years).

Core rates and bands (2026/27)

• Nil-rate band (NRB): £325,000 (frozen). Death rate 40% above the NRB; 36% if ≥10% of the net estate passes to charity.
• Residence nil-rate band (RNRB): £175,000, available where a home (or its value) passes to direct descendants. Tapered £1 for every £2 the estate exceeds £2,000,000.
• Transferable: unused NRB and RNRB pass to a surviving spouse/civil partner (s.8A) — potentially up to £1m combined per couple.
• Spouse/charity exemptions: transfers between spouses/civil partners are exempt; charity gifts are exempt under s.23 and do not use the NRB.

Business Property Relief (BPR) — the trap area

BPR reduces the transfer value of qualifying business property. Asset must have been owned for 2 years before the transfer.

• 100% relief: unquoted shares (incl. AIM historically), and a sole trader's/partnership's business or interest in it.
• 50% relief: quoted controlling shareholdings, and land/buildings/plant owned personally but used by the company/partnership.

MAJOR REFORM — from 6 April 2026: the 100% rate is capped at a £2,500,000 allowance per person; value above £2.5m gets only 50% relief. The allowance is transferable between spouses (full £2.5m where the first death was before 6 April 2026 — up to £5m per couple). This reform sits in IHTA 1984 Chapter 2A (inserted by the Finance Act 2025-26, which also amends ss.104 and 116). The allowance was first announced as £1m at Autumn Budget 2024, then raised to £2.5m on 23 December 2025 — materials still citing the £1m figure are out of date. Agricultural Property Relief shares the same £2.5m allowance.

Common SBAQ traps

• Excepted assets and investment businesses (dealing in land/securities, holding investments) get NO BPR — IHTA s.105(3). The classic distractor.
• BPR applies before the NRB.
• RNRB tapers away entirely once the estate is large enough; check it is not lost.
• A failed PET uses NRB first in chronological order; taper relief reduces the tax, not the value, only after 3+ years.
• Don't confuse BPR (an IHT relief) with Business Asset Disposal Relief (a CGT relief: £1m lifetime limit, 18% rate from 6 April 2026).

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