What qualifies, and what does not
Business relief is targeted at genuine trading activity. A sole trade, a partnership share or shares in an unlisted trading company can attract 100% relief; a controlling holding in a listed company, or premises and machinery you own personally but your company uses, attract 50%. The general rule is two years' ownership immediately before the transfer, with replacement property allowed to count in some cases. The boundary matters because HMRC scrutinises claims closely: businesses consisting wholly or mainly of dealing in securities or land, or making or holding investments, are denied relief, which is why buy-to-let portfolios rarely qualify, and excepted assets such as surplus cash or a private asset held in the company are stripped out of the claim. The wider IHT context is covered in our inheritance tax guide.
The April 2026 cap on 100% relief
From 6 April 2026 each person has a single combined allowance of £2.5 million of qualifying business and agricultural property that can attract 100% relief; qualifying value above it gets 50%, an effective IHT rate of up to 20% on the excess, generally payable in ten interest-free instalments. The allowance was announced at £1 million in October 2024, made transferable between spouses at the Autumn Budget 2025 and raised to £2.5 million on 23 December 2025, so a couple can now shelter up to £5 million at 100%. AIM investors fare worst: shares not listed on a recognised stock exchange drop to 50% relief from the first pound and cannot use the allowance, which halves the shelter many portfolios were built around. An anti-forestalling rule reaches back, catching lifetime gifts made on or after 30 October 2024 where the donor dies on or after 6 April 2026.
What owners should do now
For most modest estates the reform changes nothing, because qualifying assets sit within the allowance. The impact lands on higher-value businesses and farms: a £4 million qualifying estate held by one person now leaves £750,000 exposed at 40%, a £300,000 charge where previously there was none. Sensible responses include equalising ownership between spouses to use both allowances, checking the two-year clock and trading status of each asset, reviewing AIM-heavy portfolios, and putting life cover in place so the business does not have to be sold to pay the bill. The changes also interact with reducing inheritance tax more broadly and with the 2027 pension change. Horizon models exposure and builds the succession plan on fixed fees agreed upfront; book a free clarity call at /book to see where your business stands.