Inheritance Tax Business Property Relief UK (2026): BPR, the April 2026 Cap and AIM Shares

Business Property Relief (BPR) is a statutory reduction in inheritance tax on qualifying business assets, governed by IHTA 1984 ss.103-114. It can reduce the IHT charge by 50% or 100% on qualifying business interests: (1) ASSETS QUALIFYING FOR 100% BPR (IHTA 1984 s.105(1)(a)-(d)): (a) A business (or interest in a business) — a sole trader's business, or a partner's share in a partnership. This includes the business premises, stock, goodwill, and other business assets held as part of the business; (b) Unquoted shares in a company — shares in a company whose shares are not quoted on a recognised stock exchange. This includes private limited companies, private family companies, and shares on AIM (the Alternative Investment Market — see below); (c) Unquoted securities in a company — loan notes and debentures in an unquoted company if the transferor has voting control; (2) ASSETS QUALIFYING FOR 50% BPR (s.105(1)(e)-(f)): (a) Quoted shares or securities in a company where the transferor has control — the transferor must own more than 50% of the voting rights in a listed (quoted) company. Rare in practice since most controlling shareholders in listed companies hold unquoted or AIM shares; (b) Land, buildings, machinery, or plant used wholly or mainly for the purposes of a business carried on by a company of which the transferor has control, or by a partnership of which the transferor is a partner; (3) THE TRADING REQUIREMENT — NOT INVESTMENT: BPR is only available on businesses that are wholly or mainly trading (not investment). A company or business that wholly or mainly holds investments, rental property, or other non-trading assets does NOT qualify. 'Wholly or mainly' is assessed by looking at the time, income, costs, and nature of the business activities. HMRC scrutinises businesses with significant investment or property rental elements; (4) THE 2-YEAR MINIMUM HOLDING PERIOD: BPR requires the transferor to have owned the business or shares for at least 2 years immediately before the transfer (death or lifetime gift). There is no relief for assets held for less than 2 years. Replacement property relief (IHTA 1984 s.107) allows the 2-year period to be aggregated across replacement qualifying assets in some circumstances; (5) BPR ON LIFETIME GIFTS (PETs AND CLTs): BPR can also apply to lifetime gifts. If the donor makes a PET or CLT of qualifying business property and dies within 7 years, BPR may still apply at the date of death — provided the recipient still owns the original asset (or qualifying replacement) at the date of death or at the date of the transfer if the recipient predeceased the donor.

From 6 April 2026, the government introduced a combined £1 million cap on Business Property Relief (BPR) and Agricultural Property Relief (APR) at the 100%/50% rates. This is one of the most significant IHT changes in recent years: (1) THE NEW RULE (Finance Act 2024; in force from 6 April 2026): the combined value of assets qualifying for 100% BPR and 100% APR that receives full relief is capped at £1 million per person per estate. The £1 million limit applies to the aggregate of all qualifying 100% BPR and APR assets. Assets above £1 million in total are taxed at 20% (half the normal IHT rate of 40%) — effectively a 50% partial relief above the cap; (2) ILLUSTRATION: business owner dies with unquoted company shares worth £2 million (qualifying for 100% BPR). Pre-April 2026: full BPR on all £2 million — £0 IHT on the shares. Post-April 2026: first £1 million of qualifying BPR/APR assets — 0% IHT. Remaining £1 million — taxed at 20% (half rate). IHT on shares: £1,000,000 × 20% = £200,000; (3) THE 50% BPR ASSETS: the £1 million cap applies to 100% relief assets. Assets qualifying for 50% BPR (listed shares with control; business premises) continue to attract 50% relief without a cap. However, the effective IHT rate on these is already 20% — the same as on qualifying assets above the £1 million cap; (4) INSTALMENT OPTION: HMRC allows IHT on qualifying business and agricultural property to be paid in 10 annual instalments (IHTA 1984 s.227). This prevents a forced sale to pay the IHT bill in the year of death. Instalments are interest-free for qualifying property. This is particularly important for illiquid assets (family business; farm) where a forced sale would destroy the value; (5) PLANNING IMPLICATIONS OF THE CAP: (a) Review the estate and consider whether the combined BPR/APR value exceeds £1 million; (b) Lifetime gifting of qualifying assets may still be effective — but the 7-year clock applies; (c) Life insurance in trust (whole of life policy) to cover the expected IHT liability above £1 million; (d) BPR-qualifying AIM ISA holdings still benefit from the cap rules; (e) Corporate restructuring to ensure the maximum trading proportion — ensuring the business qualifies at all is now more important than ever; (f) Deeds of variation after death can still redirect qualifying BPR/APR assets to maximise the first spouse's £1 million cap use.

Yes — shares traded on the Alternative Investment Market (AIM) can qualify for 100% BPR, subject to the standard qualifying conditions: (1) AIM AS UNQUOTED: AIM is a sub-market of the London Stock Exchange but it is not a 'recognised stock exchange' for the purposes of IHTA 1984 s.105(1)(b). Therefore, AIM shares are treated as unquoted shares for BPR purposes — they qualify for 100% BPR if the underlying company satisfies the trading condition and the 2-year holding requirement; (2) THE TRADING CONDITION: the AIM company must be wholly or mainly a trading company. AIM is home to many investment trusts, property companies, and non-trading vehicles that do NOT qualify for BPR. Only AIM-listed companies with genuine trading businesses qualify; (3) AIM IHT PORTFOLIOS (AIM ISA): financial advisers and investment managers market specialist AIM portfolios designed to qualify for BPR and be held within an ISA (known as AIM ISAs or AIM IHT portfolios). These were particularly popular before April 2026. Under the new cap: the first £1 million of qualifying AIM/ISA BPR assets qualifies at 0%; assets above £1 million in the combined BPR+APR pool are taxed at 20%. This significantly changes the cost-benefit analysis for large AIM IHT portfolios; (4) RISKS OF AIM IHT PORTFOLIOS: (a) Market risk: AIM shares are typically more volatile than FTSE 100/250 shares; (b) BPR risk: HMRC can challenge whether a specific AIM company qualifies — companies can change their business model; (c) Liquidity risk: AIM shares may be harder to sell quickly at fair value; (d) The cap means large portfolios above £1 million now have partial IHT exposure; (5) PROFESSIONAL ADVICE: AIM IHT investing requires specialist financial advice. The interaction between the AIM IHT portfolio, the overall estate, the NRB, the RNRB, and the new £1 million cap must be modelled carefully. An IFA and an estate planning solicitor should both be involved.

Several categories of business are excluded from BPR under IHTA 1984 s.105(3): (1) INVESTMENT BUSINESSES — THE PRIMARY EXCLUSION: a business or company 'wholly or mainly' consisting of making or holding investments does not qualify. This includes: (a) Property investment companies (holding residential or commercial investment properties for rental income — even if traded on a regular basis); (b) Investment trusts and funds; (c) Businesses whose primary activity is lending money at interest; (d) Holding companies whose subsidiaries are mainly investment rather than trading; (2) LAND DEVELOPMENT AND PROPERTY TRADING: a business dealing in land is generally excluded (even if it involves development activity) unless it is a genuine property trading business with turnover and stock. The distinction between property trading and property investment is fact-intensive and contentious — HMRC scrutinises carefully; (3) EXCEPTED ASSETS (IHTA 1984 S.112): even within a qualifying business, assets that are not 'wholly or mainly' used in the business or held for future business use are excluded from BPR. Examples: excess cash above operational needs; investments held outside the business; land and buildings not used in the business; non-business vehicles. HMRC will strip out excepted assets when calculating the BPR-eligible value; (4) FARMLAND WITH PLANNING PERMISSION (HOPE VALUE): agricultural land with planning permission for development has a 'hope value' element. The BPR/APR interaction is complex — the agricultural value may attract APR but the enhanced value (hope value) may be fully exposed to IHT; (5) HALF-AND-HALF BUSINESSES: a business that is 50% trading and 50% investment is particularly contentious. HMRC applies the 'wholly or mainly' test by reference to income, capital value, time spent by management, and asset composition. 'Mainly' means more than 50%. A borderline case requires professional advice before death — restructuring the business to increase the trading proportion may be possible and worthwhile; (6) FURNISHED HOLIDAY LETTINGS: FHL businesses can be qualifying trading activities for some tax purposes but are generally treated as investment activities for BPR. HMRC takes a restrictive view. Cases are fact-specific and regularly litigated.

Maximising BPR requires planning both during lifetime and through the will: (1) BPR IN THE WILL — WHO INHERITS THE BUSINESS: leaving qualifying business assets to a surviving spouse (exempt under IHTA 1984 s.18) wastes the BPR, because the spouse exemption applies regardless and the BPR is redundant. Better planning: leave the qualifying business assets to non-exempt beneficiaries (children) to use both the BPR and their NRB. Leave non-business assets to the surviving spouse (spouse exemption). This achieves two layers of relief; (2) SPOUSE EXEMPTION WASTES BPR: if a business owner's will leaves qualifying shares (worth £800,000) to the surviving spouse, BPR of £800,000 could have been used to pass those shares to children entirely tax-free. Instead the spouse exemption is used — and the shares join the surviving spouse's estate (where BPR may be less well-planned or the shares may have been sold). Consider passing business assets directly to children with a legacy of other assets to the spouse; (3) POST-APRIL 2026 — £1 MILLION CAP PLANNING: where the business is worth more than £1 million, the will must consider: (a) Which £1 million of qualifying assets uses the cap most efficiently; (b) Whether the surviving spouse can use a separate £1 million cap on the second death (yes — each person has their own £1 million cap; but the cap is not transferable like the NRB); (c) Whether lifetime gifting of excess above £1 million is appropriate; (4) DEED OF VARIATION: if the will did not plan for BPR efficiently (e.g. left business assets to spouse), a deed of variation (IHTA 1984 s.142) can redirect qualifying assets within 2 years of death to non-exempt beneficiaries — using both the BPR and the NRB at the first death; (5) WILLS FOR BUSINESS OWNERS: a standard WillSafe UK will kit from £35 provides the testamentary framework. For a business owner, supplementary legal advice on the BPR interaction, shareholder agreements (buy/sell), and company articles is strongly recommended alongside the will.