Inheritance tax for business owners: business relief from 2026

What changed on 6 April 2026

Business relief, also called business property relief, reduces the value of a business or business assets for inheritance tax. Agricultural relief does the same for farmland and farm buildings. Until 5 April 2026, relief at 100% was unlimited for a business or an interest in a business, such as a sole trader's business or a partnership share, and for shares in an unquoted trading company, so a qualifying family company could pass on death free of inheritance tax whatever its value.

Section 65 of and Schedule 12 to the Finance Act 2026, which received Royal Assent on 18 March 2026, changed that for transfers made on or after 6 April 2026, including transfers on death. Relief at 100% now applies only up to an allowance of £2.5 million per person, shared between business and agricultural property, and qualifying property above the allowance gets relief at 50%. The allowance was £1 million when the change was announced in October 2024, and the government raised it to £2.5 million in December 2025, before the Act was passed.

Type of property	Relief until 5 April 2026	Relief from 6 April 2026
A business or an interest in a business, such as a sole trader's business or a partnership share	100%	100% within the £2.5 million allowance, 50% above it
Shares in an unquoted trading company that are not traded on any stock exchange	100%	100% within the allowance, 50% above it
Shares traded on AIM or on other markets where they are not treated as listed	100%	50%, without using the allowance
Listed shares that give you control of the company	50%	50%
Land, buildings or machinery you own personally and that are used by a company you control or a partnership you are in	50%	50%

The existing conditions for relief still apply, including the two-year ownership rule and the exclusion of investment businesses and of assets not used in the business. The inheritance tax nil-rate band of £325,000 and the residence nil-rate band of £175,000 are fixed until 5 April 2031, and the £2.5 million allowance is due to rise in line with inflation from 6 April 2031.

How the £2.5 million allowance works

Each person has their own allowance of £2.5 million. It covers qualifying business property and agricultural property together, so someone who owns both farmland and shares in a trading company has one allowance for both.

The allowance is used in date order. Chargeable lifetime gifts of qualifying property use it first, starting with the oldest, including gifts that become chargeable because the giver dies within seven years of making them. What is left is shared proportionally across all the qualifying property in the estate on death, and it cannot be applied to one asset in preference to another.

Only chargeable transfers use the allowance. Business property you leave to your spouse or civil partner, or to charity, is exempt from inheritance tax in any case, so it does not use any of the allowance.

For example, say a business owner who is not married dies in 2027 owning all the shares in a trading company worth £4 million. They have owned the shares for many years, the company holds no surplus cash, they made no lifetime gifts, and the rest of their estate uses up the nil-rate band. The first £2.5 million of the shares gets 100% relief and the remaining £1.5 million gets 50% relief, so £750,000 is chargeable, and inheritance tax at 40% on the shares comes to £300,000.

Where qualifying property is worth close to or more than the allowance, the value of the business at the date of death decides how much tax is payable, and HMRC can challenge a valuation. Base your planning on a realistic, up-to-date valuation.

Passing unused allowance to a spouse or civil partner

If you are married or in a civil partnership, any part of your £2.5 million allowance that is unused when you die can be transferred to your surviving spouse or civil partner, under a new section 124E of the Inheritance Tax Act 1984. The survivor's allowance can be increased by up to 100%, so a couple can pass on up to £5 million of qualifying business and agricultural property with 100% relief between them, in addition to their nil-rate bands.

Where the first spouse or civil partner died before 6 April 2026, the whole £2.5 million allowance is treated as unused, even if business relief was claimed on their estate. The transfer has to be claimed: the survivor's personal representatives must claim it on form IHT437 with the inheritance tax account, within four years of the end of the month in which the survivor died or, if later, within six months of when they began acting.

That gives couples a choice about where business property goes on the first death. Leaving it to the surviving spouse or civil partner means no inheritance tax on the first death and a larger allowance on the second, and the survivor is treated as having owned the property for as long as the first spouse did, for the two-year ownership rule. That relies on the survivor still owning qualifying property when they die, because if the business has been sold and the proceeds are held as cash, they get no business relief. Leaving business property worth up to £2.5 million to children or to a trust on the first death uses that allowance straight away and secures the relief on those assets, while the survivor keeps their own allowance. Which approach suits a family depends on the business and how likely a sale is, and the will should be written with that choice in mind.

AIM shares and other traded shares

Shares admitted to trading on the Alternative Investment Market (AIM) are not listed on a recognised stock exchange, so they have counted as unquoted shares for inheritance tax. Until 5 April 2026, AIM shares in a qualifying trading company could get 100% business relief once they had been owned for two years.

From 6 April 2026, unquoted shares that are traded on a recognised stock exchange, which includes AIM, qualify for relief at 50% only, and so do shares traded on an overseas exchange that is not a recognised stock exchange. These shares do not use the £2.5 million allowance, so relief on them is 50% whatever the value of your other business property. The two-year ownership rule still applies.

There is a transitional rule for gifts. If you gave AIM shares away on or after 30 October 2024 and before 6 April 2026, and you die on or after 6 April 2026 and within seven years of the gift, relief on that gift is worked out at 50%. Tax on shares that qualify for relief at 50% can still be paid by interest-free instalments.

Paying the tax by instalments

Inheritance tax on a death is due by the end of the sixth month after the month in which the person died, and some tax usually has to be paid before the grant of probate can be issued. Since 6 April 2026, tax on any property that qualifies for business relief or agricultural relief can be paid in ten equal yearly instalments, and those instalments are free of interest as long as each one is paid on time. The first instalment is due when the tax would otherwise be due, and the choice to pay by instalments is made on the inheritance tax account.

In the example above, where the tax on the shares is £300,000, the family could pay £30,000 a year for ten years without interest, provided every payment is made on time. If the shares are sold, the tax still outstanding on them becomes payable straight away.

Your family will still need a source for each instalment, such as dividends from the company, life insurance written in trust, other assets in the estate or a sale of part of the business.

Lifetime gifts, trusts and pensions

Giving business property away during your lifetime can still take it outside your estate for inheritance tax if you survive for seven years. If you die within seven years, the gift uses your allowance, and relief is only given if the person who received it still owns the business property, or qualifying replacement property, when you die and it would still qualify for relief at that point. Gifts of qualifying property made on or after 30 October 2024 count against your allowance if you die on or after 6 April 2026 and within seven years of the gift.

A lifetime gift can also create a capital gains tax charge, because giving an asset away is treated as disposing of it at market value, although gift hold-over relief may postpone the tax on business assets. Assets you still own when you die are not treated as disposed of for capital gains tax, and the people who inherit them take them at their value at the date of death.

Transferring business property into a trust during your lifetime is a chargeable transfer that uses your allowance straight away. Trusts have their own £2.5 million allowances for the ten-year and exit charges, and trusts that you create on or after 30 October 2024 share a single limit. Our guide to trusts explains how those charges work.

Pensions are changing too. For deaths on or after 6 April 2027, most unused pension funds and pension death benefits will count as part of the estate for inheritance tax, under sections 66 to 71 of the Finance Act 2026. Death-in-service benefits from a registered pension scheme and dependants' scheme pensions are excluded, and pension benefits passing to a spouse, civil partner or charity remain exempt.

Making your will and business agreements line up

Relief can be lost or wasted through the wording of documents, even where the business itself qualifies, so check the following four points.

The first is any agreement about what happens to your shares or partnership share when you die. If the articles, a shareholders' agreement or a partnership agreement create a binding contract for the survivors to buy, and your personal representatives to sell, your interest on your death, section 113 of the Inheritance Tax Act 1984 prevents it from being relevant business property, and business relief is lost. HMRC's Inheritance Tax Manual says that agreements under which the survivors have an option to buy, rather than an obligation, are not contracts for sale and do not prevent relief. Cross-option agreements, which give the survivors an option to buy and your personal representatives an option to sell, are designed with that in mind, and the purchase is often funded by life insurance.

The second is consistency between your will and the business documents. A will that leaves shares to your children will not work as intended if the articles require the shares to be offered to the other shareholders first. Read the documents together whenever either one is changed. Our guides to shareholder agreements and partnership agreements cover the business side.

The third is the wording of the will itself. Under the rules for allocating relief, a specific gift of business property in a will carries the relief with it, while business property that falls into a residue shared with an exempt spouse or charity has its relief spread across the whole residue, including the exempt part. A specific gift of business property to children or to a trust, with the rest of the estate going to a spouse, can use the relief more efficiently. A will can instead leave business property to a discretionary trust, so that the trustees can decide who receives it within two years of the death, with the distribution treated for inheritance tax as if the will had made it.

The fourth is what the business holds. Cash and investments that are not used in the business, or required for its future use, are excepted assets and get no relief, and a company whose business is wholly or mainly making or holding investments does not qualify at all. Take accounting and tax advice before moving cash or investments out of the company.

Planning steps to discuss with your accountant or financial adviser

This planning works best when your solicitor, accountant and financial adviser are working from the same figures. Work through these steps with them.

• Get a realistic valuation of the business and any other qualifying property, and check each asset against the relief conditions, including the two-year ownership rule and any excepted assets.
• Work out how much of the £2.5 million allowance you and your spouse or civil partner are each likely to use, including gifts made since 30 October 2024, and what the tax would be on the value above it.
• Decide whether business property should go to your spouse or civil partner, to children or to a trust on the first death, taking account of how likely a sale is.
• Compare the inheritance tax effect of lifetime gifts with their capital gains tax cost and your own need for income and control.
• Review any AIM shares held for inheritance tax reasons in light of the 50% rate.
• Decide how the tax would be paid, including whether life insurance written in trust is needed and whether the family could keep up instalments.
• Add pension funds to the calculation for deaths on or after 6 April 2027.
• Keep records of when you acquired each asset and how it is used in the business, because your executors will need them to claim relief.

What a solicitor does in this planning

A solicitor's part is to make sure the legal documents carry out the plan and work together. We review your existing will, the company's articles, any shareholders' or partnership agreement and any lasting powers of attorney, and identify where they conflict with each other or with the plan. We draft wills that make specific gifts of business property or put it into trust, and cross-option agreements and changes to articles that deal with what happens to shares on death without creating a binding contract for sale. We prepare lasting powers of attorney, including a separate one for your business affairs, set up lifetime trusts and register them with HMRC, and document gifts of shares properly.

After a death, we act for executors: applying for probate, preparing the inheritance tax account with the claims for business and agricultural relief and any transferred allowance, electing to pay by instalments where that helps, and preparing deeds of variation where beneficiaries want to redirect an inheritance.

If you are an accountant or financial adviser with a client who needs the legal documents put in place, we work with you on them while you continue to advise on the tax and the financial planning. We agree the scope of the work and the cost in writing before we start.

Frequently asked questions

What is the business relief allowance from April 2026?

It is £2.5 million per person. From 6 April 2026, qualifying business and agricultural property gets 100% inheritance tax relief up to that amount in total, and 50% relief on qualifying property above it. The allowance is used first by chargeable lifetime gifts of qualifying property in the seven years before death, and it is due to rise with inflation from 6 April 2031. The rules are in Schedule 12 to the Finance Act 2026.

Can I transfer my unused business relief allowance to my spouse?

Yes. Any part of your £2.5 million allowance that is unused when you die can be claimed when your surviving spouse or civil partner dies, increasing their allowance by up to £2.5 million. If the first spouse or civil partner died before 6 April 2026, their full allowance is treated as unused. The survivor's personal representatives make the claim on form IHT437, normally within four years of the end of the month in which the survivor dies.

Do AIM shares still qualify for inheritance tax relief?

Yes, but only at 50% from 6 April 2026. AIM shares are unquoted shares traded on a recognised stock exchange, which the Finance Act 2026 moved from 100% to 50% relief, and they do not use the £2.5 million allowance. You still need to have owned them for two years. Gifts of AIM shares made from 30 October 2024 are also relieved at 50% if the giver dies on or after 6 April 2026 and within seven years.

Does cash in my company qualify for business relief?

Only if it is used in the business or required for its future use. Cash and other assets that have not been used wholly or mainly for the business, and are not needed for its future use, are excepted assets, and their value is left out of the relief. A company whose business consists wholly or mainly of making or holding investments does not qualify for business relief at all, so the make-up of the company's assets matters.

Can a shareholders' agreement stop business relief applying?

Yes, if it creates a binding contract for sale. Where an agreement obliges the surviving shareholders to buy, and your personal representatives to sell, your shares when you die, the shares are not relevant business property and relief is lost. HMRC's manual says agreements giving the survivors only an option to buy do not have that effect, which is why cross-option agreements are used. Have the agreement checked alongside your will.

Can inheritance tax on a family business be paid in instalments?

Yes. Tax on property that qualifies for business or agricultural relief can be paid in ten equal yearly instalments, and for assets inherited on or after 6 April 2026 those instalments are interest-free as long as each one is paid on time. The first instalment is due by the end of the sixth month after the month of death. If the property is sold, the tax still outstanding on it becomes payable straight away.

Will my pension be subject to inheritance tax?

For deaths on or after 6 April 2027, most unused pension funds and pension death benefits will be included in the value of the estate for inheritance tax. Death-in-service benefits from a registered pension scheme and dependants' scheme pensions are excluded, and benefits passing to a spouse, civil partner or charity remain exempt. The personal representatives will be responsible for reporting and paying any tax due on the pension.

Sources & further reading

• legislation.gov.uk — Finance Act 2026, Schedule 12
• GOV.UK — Business Relief for Inheritance Tax: what qualifies
• HMRC Inheritance Tax Manual — IHTM25520: 100% relief allowance for individuals
• HMRC Inheritance Tax Manual — IHTM25570: 50% rate for unlisted shares and securities
• HMRC Inheritance Tax Manual — IHTM25292: contracts for sale of shareholdings and partnership interests
• GOV.UK — Pay your Inheritance Tax bill: yearly instalments
• GOV.UK — Inheritance Tax: unused pension funds and death benefits
• GOV.UK — Inheritance tax reliefs threshold to rise to £2.5m for farmers and businesses

This article is general information, not legal advice. The law changes and depends on your circumstances — always take advice on your specific situation before acting. Last reviewed 17 September 2026. Buzz Solicitors is a trading name of AD Solicitors Limited, a recognised body regulated by the SRA (no. 8011228).