Business Property Relief (BPR) has long been an important Inheritance Tax (IHT) relief for business owners. However, during the 2024 Budget it was announced that BPR will be undergoing significant changes from 6 April 2026.
As we approach this date, it means now is an important time to understand how BPR currently works, the upcoming changes and the time limited window of opportunity to settle BPR qualifying property into a trust without creating an IHT liability as part of wider estate planning.
How can a trust reduce my exposure to IHT?
After transferring assets into a trust, they are no longer considered part of your estate for IHT purposes, provided you, the settlor of the trust, survive seven years after the transfer.
As there is less value within your personal estate, this reduces the total IHT payable upon death.
You would retain full control of the trust assets, including deciding when, and how much, beneficiaries of the trust receive. The trust assets are also largely protected from future potential marital or bankruptcy claims.
What are the current BPR rules?
BPR applies to shares in unquoted trading companies, sole traders, and interests in partnerships/LLPs and operates by exempting the value of business interests from IHT. The exemption currently has no cap on the value which may be sheltered from IHT and applies to IHT charges arising upon death or during lifetime.
What are the current BPR rules?
BPR applies to shares in unquoted trading companies, sole traders, and interests in partnerships/LLPs and operates by exempting the value of business interests from IHT. The exemption currently has no cap on the value which may be sheltered from IHT and applies to IHT charges arising upon death or during lifetime.
How is BPR changing from 6 April 2026?
From 6 April 2026, BPR will apply to the same business interests as set out above but the maximum value which is exempt under BPR will be capped at £1,000,000 per individual. For any excess value over the £1,000,000 cap, 50% will be covered by BPR. BPR will continue to apply to IHT charges arising upon death or during lifetime when creating a trust.
The impact of the changes to BPR are best outlined using an example as set out below.
Example of the impact of BPR changes when settling a trust
An individual holds £10,000,000 of shares in an unquoted trading company and would like to settle the whole shareholding into a trust for the benefit of their wider family. The shareholding meets the conditions to fully qualify for BPR.
When property is settled into a trust, any excess value over an individual’s nil rate band of £325,000 creates a lifetime IHT liability which applies at 20% (if the trust will be paying the IHT charge).
Under the current rules, as there is no cap on the maximum value which may be exempt under BPR, there is no lifetime IHT from settling the entire shareholding into a trust before 6 April 2026 as outlined below:
| £ | £ | ||
| Shares in unquoted trading company | 10,000,000 | ||
| Less: BPR relief | (10,000,000) | ||
| Net value | – | ||
| Less: Nil rate band | (325,000) | ||
| Value chargeable to IHT | – |
If an individual settles the same £10,000,000 of shares into a trust after 6 April 2026, the lifetime IHT charge will be significantly greater as outlined below:
| £ | £ | ||
| Shares in unquoted trading company | 10,000,000 | ||
| Less: Exempt value under BPR cap | (1,000,000) | ||
| Less: Exempt value under BPR (50%) Net value | (4,500,000) | ||
| Less: Nil rate band | (325,000) | ||
| Value chargeable to IHT | 4,175,000 | ||
| Lifetime IHT chargeable at 20% | 835,000 |
It is clear the changes to BPR relief from 6 April 2026 will significantly increase the IHT payable when transferring business assets into trust.
What action should be taken?
While the upcoming changes to BPR will lead to increased IHT liabilities, there remains a time limited window between now and 6 April 2026 to take advantage of being able settle BPR qualifying property into trust without incurring a lifetime IHT charge as part of wider estate planning.
The team at Menzies will be able to review if your shareholding is eligible for BPR and advise of the suitability and steps involved with creating a trust in the context of your overall wealth and objectives for the future.
If you have any questions, or would like to review your IHT position, please get in touch with your Menzies representative.
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