Director, Pocknells Wealth Management
For years, many business owners have assumed that a successful trading company could pass to the next generation without creating an Inheritance Tax problem. Since 6 April 2026, that assumption needs testing rather than repeating.
Business Relief and Agricultural Property Relief remain valuable. They have not been abolished. However, the amount qualifying for 100% relief is now limited, which means a growing business, farm or combined estate can create a tax liability even where the underlying assets still qualify.
For accountants, this is more than an estate-planning issue. You may be the first person to see that the company value has increased, cash has accumulated, investment activity has grown or ownership has changed. Those facts can materially alter both the relief available and the family’s ability to meet a future tax bill.
What has changed?
From 6 April 2026, a person has a £2.5 million allowance for qualifying business and agricultural property that would otherwise receive relief at 100%. The allowance is shared across the two reliefs. It is not £2.5 million for the business and another £2.5 million for agricultural property.
Qualifying value above the allowance generally receives relief at 50%. In plain English, half of the excess remains exposed to Inheritance Tax. At the standard 40% rate, this can produce an effective rate of up to 20% on the qualifying value above the allowance, subject to the rest of the estate, exemptions and available nil-rate bands.
Any unused allowance can be transferred to a surviving spouse or civil partner. This can give the survivor up to £5 million of 100% relief allowance. If the first spouse or civil partner died before 6 April 2026, HMRC says the full £2.5 million can be treated as available for transfer.
The rules are now in force. This is not a Budget proposal awaiting a future start date.
A simple example
Consider a single shareholder whose qualifying trading company shares are worth £4 million. The first £2.5 million can fall within the 100% relief allowance. The remaining £1.5 million receives 50% relief, leaving £750,000 within the Inheritance Tax calculation.
That does not automatically mean a £300,000 tax bill. The final liability depends on the rest of the estate, debts, exemptions, lifetime gifts and nil-rate bands. It does show why the old shorthand of ‘the company is covered by Business Relief’ is no longer enough.
Relief is not automatic
Before considering the new allowance, the asset must qualify in the first place. Broadly, Business Relief can apply to a business or an interest in a business and to shares in an unlisted trading company. The deceased will usually need to have owned the business or asset for at least two years.
A business that mainly deals in securities, shares, land or buildings, or mainly makes or holds investments, will not normally qualify. Assets that were not used mainly for the business, or were not needed for its future use, may also fall outside the relief.
This is where ordinary commercial decisions can have an estate-planning consequence. Large investment portfolios, surplus cash with no clear business purpose, property activities, a move towards letting assets or a sale process can all justify a fresh review. The answer is fact-specific, so clients should not move money or restructure ownership simply to chase relief.
Shares traded on markets such as AIM now receive Business Relief at 50% where they qualify. They do not receive 100% relief under the new allowance. This makes it particularly important not to describe an AIM portfolio as ‘Inheritance Tax free’.
What about farms and land?
Agricultural Property Relief follows the same combined £2.5 million limit for 100% relief. Qualifying value above that amount receives relief at 50%.
The detail still matters. Agricultural Relief applies to the agricultural value of qualifying land and buildings, not necessarily the full open-market value. A farmhouse must be appropriate to the farming activity, and the ownership and occupation tests must be satisfied. Machinery, livestock and value attributable to a country residence are not automatically covered by Agricultural Relief, although Business Relief may sometimes be relevant to parts of a genuine farming business.
Questions worth raising with clients
- What is the current market value of the company, partnership interest, farm or qualifying land?
- Who owns the shares or assets, and is the ownership reflected correctly in the Wills and shareholders’ agreement?
- Has the business held growing levels of cash, investments or property that may not be needed for trading?
- Has the client owned the qualifying asset for at least two years?
- Is there a spouse or civil partner whose unused allowance may be transferable?
- Would the family have enough liquidity to meet tax without forcing a rushed sale?
- Do lifetime gifts, trusts, life assurance or pension benefits need to be considered alongside the business?
- Is there a clear succession plan, or is the family relying on the next generation to decide after death?
Planning for the tax and the business
The new rules should not turn succession planning into a tax exercise. A business may provide income, identity, employment and family security. Giving shares away too early, changing control or taking out excessive borrowing can cause more damage than the tax planning solves.
There is also a practical concession. Inheritance Tax attributable to property qualifying for Agricultural or Business Relief can generally be paid in ten equal annual instalments without interest. That may help cashflow, but it does not remove the liability or guarantee that the family can retain the asset comfortably.
A useful review starts with valuation and eligibility, then considers ownership, family intentions, cashflow and funding. Where a liability is likely, the options may include carefully structured lifetime planning, updated Wills, shareholder arrangements, an appropriate insurance solution or simply building a reserve. Each carries its own tax, legal and commercial consequences.
Working together
This is exactly the sort of area where the accountant, financial planner and solicitor need to work from the same facts.
At Pocknells Wealth Management, we work alongside the client’s accountant and support the relationship you already have. We are not looking to replace your role. Your knowledge of the company, its balance sheet, historic transactions and the owner’s plans is central to any sensible recommendation.
Our part is to help the client understand the personal financial consequences, model the family’s position, consider how a future liability might be funded and make sure the succession plan does not undermine their own long-term security.
The conclusion
Business Relief and Agricultural Property Relief remain meaningful protections. For many estates, the new £2.5 million allowance, transferable between spouses and civil partners, will still cover the full qualifying value.
For larger or fast-growing businesses and farms, the position has changed. The right question is no longer simply whether relief applies. It is how much value qualifies, which rate applies, what sits outside the relief and whether the family could manage the resulting liability.
A short, joined-up review now can reveal a gap while the owner still has time to make a calm decision.
Planning Points with Pocknells
If you have a client whose business, farm or succession plan may be affected, we would be pleased to offer a complimentary Planning Points with Pocknells session.
We can explore the key issues with you and your client, identify where regulated financial advice may add value and agree how we can work alongside you.
Important information
This article is for general information only and does not constitute financial, tax, accounting or legal advice. Tax treatment depends on individual circumstances and may change. Business, agricultural and estate-planning decisions should be made with appropriate professional advice. Where investments or insurance solutions are considered, their suitability will depend on the client’s circumstances. The value of investments can fall as well as rise, and clients may get back less than they invest.
