Reforms to Business Property Relief (BPR) are due to come into force from 6 April 2026, which will significantly limit the inheritance tax (IHT) savings. For now, taxpayers still have a valuable succession planning strategy available, but only for a limited time.
Current rules
Under the current rules, BPR provides 100% relief from IHT on qualifying businesses. From 6 April 2026, the relief will be reduced to 50% on amounts over £1 million.
Lifetime BPR planning
Entrepreneurs who have built a significant business may wish to consider tax efficient succession planning. This is especially the case if there is an anticipated exit that may leave them with more money than they need. Business owners often wish to set aside the surplus sale proceeds for the next generations, but the challenge is finding the best way to pass them on.
Holding onto significant cash investments until death means your successors may face a 40% IHT bill when they inherit. Alternatively, gifting some of the sale proceeds during your lifetime may save that IHT charge (if you survive seven years), but this is often unsuitable, especially for younger children or larger sums. It can expose the recipients to risks like divorce or misuse, and even undermine motivation and purpose in life.
For many business owners, a discretionary trust can offer an ideal solution.
Assets placed in an appropriate trust are removed from your estate for IHT (if you survive seven years), but you can retain a degree of control over them. Trustees manage the assets for the beneficiaries (such as your children), guided by your letter of wishes setting out how you envisage the trust assets being used. You can even be a trustee.
Ordinarily, transfers to a discretionary trust trigger an immediate 20% IHT "entry charge". However, transferring shares before April 2026 could still attract 100% BPR relief, thereby avoiding that charge. The trust assets should also escape 40% IHT charge on death of the business owner after seven years. While the trustees may pay relatively modest IHT charges (up to 6%) on certain occasions, this is often seen as a reasonable cost for achieving the significant IHT savings and retaining some control.
With the rules set to change soon, there’s only a short window left to take advantage of this planning. Business owners are encouraged to consider whether this approach could benefit them, even if a sale is not imminent