Inheritance Tax and Business Property Relief: What Changed in 2024 and What It Means

If you own a trading business worth more than £1 million and you were planning to pass it to your family on death, the rules changed significantly in October 2024. Business Property Relief no longer provides blanket 100% exemption from inheritance tax on qualifying business assets. Above a £1 million threshold, IHT now applies at an effective rate of 20%. For owners of businesses worth £2 million, £5 million, or £10 million, the numbers are material. And the planning implications are substantial.

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What was Business Property Relief, and how did it work?

Business Property Relief (BPR) was introduced in 1976 specifically to prevent family businesses from being broken up to pay inheritance tax on the death of an owner. The logic was sound: a trading business is an illiquid asset. Forcing a family to sell it. Or sell shares in it. Simply to fund an IHT bill was widely seen as economically damaging and unfair.

Under the previous rules, qualifying business assets attracted 100% relief from IHT. That meant a business worth £5 million passed on death to family members with zero IHT liability, provided the business had been owned for at least two years and met HMRC's qualifying conditions. Those conditions excluded investment businesses, property investment companies, and businesses where the primary activity was holding assets rather than trading.

For owner-managers of trading businesses. Manufacturing, logistics, professional services, construction, healthcare. This was one of the most powerful reliefs in the UK tax system. Many business succession plans were structured entirely around it.

What changed in the October 2024 Budget?

In the Autumn 2024 Budget, the Chancellor announced a fundamental reform to both BPR and Agricultural Property Relief (APR). The changes take effect from 6 April 2026.

The headline change: 100% BPR is now capped at £1 million per person across qualifying business and agricultural property combined. Above that threshold, BPR drops to 50% relief. Meaning IHT applies at an effective rate of 20% on the excess (50% of the standard 40% rate).

This is a structural change, not a marginal adjustment. The £1 million cap is per individual, not per business, and it applies to the combined value of all BPR and APR qualifying assets in the estate.

How does the £1m cap actually work in practice?

Here is a straightforward illustration of the impact across different business values:

Business ValueBPR at 100% (up to £1m)Taxable at 20% effective rateIHT Liability (approx.)
£1,000,000£1,000,000£0£0
£2,000,000£1,000,000£1,000,000£200,000
£5,000,000£1,000,000£4,000,000£800,000
£10,000,000£1,000,000£9,000,000£1,800,000

Assumes the full estate consists of qualifying business assets and no other reliefs apply. These figures are illustrative only.

For context, a business turning £3 million revenue in manufacturing or professional services at a 10–12% EBITDA margin produces around £300,000–£360,000 EBITDA. At a conservative 4–5x multiple, that business is worth £1.2–£1.8 million. Even at modest valuations, a significant proportion of trading businesses will breach the £1 million cap.

And note: the cap applies to the combined value of BPR and APR qualifying assets. If you own both farming land and a business, they share the same £1 million allowance.

How does this interact with Agricultural Property Relief?

APR operates similarly to BPR and was previously uncapped. Under the 2024 Budget changes, APR has been reformed in parallel. The £1 million combined cap applies to both reliefs together. Farmers and landowners with businesses that also qualify for BPR need to consider how the combined cap affects their overall position, since the two reliefs now compete for the same allowance.

If your business assets qualify for BPR and you also own qualifying agricultural property, specialist advice is essential. The interaction between the two reliefs, the order in which they are applied, and how your estate is structured will significantly affect your IHT exposure.

What does this mean for family business succession?

For owner-managers who intended to pass a business to the next generation. Whether children, a management team under an MBO structure, or into an Employee Ownership Trust. The calculus has changed.

Three things are now true that were not true before October 2024:

  1. Lifetime gifting has become more attractive relative to death transfers. If you gift shares in a trading business during your lifetime and survive seven years, those gifts fall outside your estate entirely. No BPR cap, no IHT. That calculation looks very different now than it did in 2023.

  2. Business sale during your lifetime may now be preferable to succession on death. If the proceeds of a sale can be sheltered using other reliefs. Business Asset Disposal Relief for CGT, for example. Selling and passing on the cash (with the benefit of your nil-rate band and other allowances) may result in a lower overall tax burden than passing the business intact.

  3. The timing of succession matters more than it used to. A death transfer of a £5 million business now carries a potential £800,000 IHT liability. Restructuring to mitigate that exposure takes time. Trusts, lifetime gifts, and corporate reorganisations all have minimum holding periods and qualifying conditions.

What planning options are still available?

The 2024 changes have not eliminated planning opportunities. They have made planning more necessary and more complex. Here are the principal options worth exploring with a qualified adviser:

  1. Lifetime gifts of shares. Gifts of trading company shares to individuals are potentially exempt transfers for IHT purposes. Survive seven years and the gift is outside your estate. Taper relief reduces the IHT charge if you die between three and seven years after the gift. This route requires consideration of CGT hold-over relief, shareholder agreements, and control implications.

  2. Employee Ownership Trust. A sale to an EOT during your lifetime is free from CGT, and the shares leave your estate. EOTs have become more popular post-2024 precisely because they offer a clean lifetime exit with significant tax efficiency. Be aware that HMRC scrutiny of EOT structures has increased.

  3. Insurance to cover the IHT liability. Whole-of-life policies written into trust can be structured to meet a projected IHT liability on death. This does not reduce the tax. It funds it. It is a planning tool, not a planning solution, but for some owners it is the simplest answer.

  4. Corporate restructuring to separate trading and investment assets. HMRC disqualifies investment assets from BPR. If your business holds surplus cash, investment property, or non-trading assets, these were already outside the relief. Restructuring to ringfence them can preserve the £1 million full-relief allowance for the qualifying trading business.

  5. Spousal transfers and doubling the cap. Assets passed to a spouse or civil partner on death are exempt from IHT. If each spouse subsequently makes their own transfers using their own £1 million BPR allowance, the combined household cap is effectively £2 million at 100% relief. This requires careful estate planning and does not help if the business is already in one person's name.

  6. Outright sale. Blunt but worth stating: if you were already considering an exit, the 2024 changes have shifted the tax comparison in favour of selling during your lifetime rather than holding to death. Run the numbers with a tax adviser before assuming that holding on is still the right call.

This article contains general information only and does not constitute financial or tax advice. Every business sale is different. Speak to a qualified UK tax adviser about your specific situation before making any decisions.

FAQ

When do the 2024 BPR changes take effect? The changes announced in the October 2024 Budget apply from 6 April 2026. Estates where death occurs before that date are subject to the previous rules. 100% BPR with no cap.

Does the £1 million cap apply per person or per business? Per person. It applies to the total value of all BPR and APR qualifying assets in your estate combined. If you own two businesses, the combined value is tested against the single £1 million cap.

What is the effective IHT rate above the £1 million cap? 20%. The standard IHT rate is 40%, but only 50% of the excess value is taxable under the reformed relief. 50% of 40% equals an effective rate of 20% on the amount above £1 million.

Do the changes affect shares in AIM-listed companies that previously qualified for BPR? Yes. The £1 million cap applies to AIM shares that qualified for BPR, just as it does to private trading businesses. This has attracted significant attention from wealth managers and AIM investors.

Can I still use hold-over relief if I gift shares in my trading company? Yes, in most circumstances. Hold-over relief under s.165 TCGA 1992 allows CGT to be deferred on gifts of qualifying business assets. The recipient takes on your base cost. This does not affect the IHT position of the gift, which is governed by separate rules.

Is an Employee Ownership Trust still worth considering post-2024? Yes, arguably more so. A sale to an EOT during your lifetime removes the shares from your estate, avoids CGT on the sale, and the BPR cap becomes irrelevant. The business must meet qualifying conditions and the EOT must be structured correctly. HMRC scrutiny has increased, so the quality of advice matters.

Get a sense of your business value

If the 2024 BPR changes have prompted you to think more carefully about the value of your business and what your options look like, the starting point is knowing what the business is actually worth.

Use the free valuation calculator on the Succession Group website to get a working estimate of your business value based on sector, revenue, and EBITDA. It is not a substitute for a formal valuation, but it gives you a realistic number to take into your planning conversations.