What is Business Relief and when does it apply?

BR reduces the IHT-able value of qualifying business assets by 100% or 50%, provided you've held them for at least 2 years before death. Applies to unquoted trading shares (100%), AIM shares (50%), sole-trader businesses (100%), and partnership shares (100%).

Why is BR being capped from April 2026?

Government policy targeting wealthy estates that previously paid £0 IHT on multi-million pound business holdings. The £1m cap is intended to maintain relief for genuine SMEs while limiting the tax saving for very large family businesses.

Will BR be retroactive on assets held since before 2026?

No — the April 2026 changes apply only to deaths from that date. Pre-2026 deaths use the old rules. Lifetime gifts made before April 2026 with qualifying assets lock in the 100% relief if the donor survives 7 years.

Does BR apply to AIM shares held in an ISA?

Yes — but the ISA's CGT and income tax exemptions don't reduce BR's IHT relief. AIM ISA holdings receive both ISA tax exemption AND BR (currently 50%, falling to 50% with cap from April 2026).

What's the difference between 100% and 50% BR?

Different asset types qualify for different rates. 100% covers full ownership of trading businesses (unquoted shares, sole-trader, partnership). 50% covers passive interests (AIM shares, partnership-used property, controlling holdings in quoted companies).

Do I lose BR if the business is sold before death?

Yes — sale converts qualifying assets to cash, which doesn't qualify. Replacement BR rules can preserve relief if you reinvest within 3 years in qualifying replacement business assets.

Are partnership interests covered by BR?

Yes — interests in trading partnerships (LLPs, traditional partnerships, Scottish partnerships) qualify for 100% BR. Investment partnerships don't qualify.

Can I transfer unused BR cap (post-April 2026) to my spouse?

Yes — like the NRB and RNRB, the £1m BR cap is transferable between spouses, allowing couples to pass £2m of 100%-relief assets to descendants.

IHT Business Relief Calculator UK 2025/26

How Business Relief works in 2025/26

Business Relief (formerly Business Property Relief or BPR) reduces the value of qualifying business assets for IHT purposes by either 100% or 50%, depending on the asset type. Until April 2026 the structure is:

100% relief on:
- Sole-trader business assets (the whole business or a part).
- Partnership shares.
- Unquoted (not on a recognised exchange) trading company shares.
50% relief on:
- AIM-listed company shares (Alternative Investment Market).
- Land/buildings/plant used by a partnership or company you control.
- Quoted shares giving control of a quoted company.

Holding period: Generally 2 years of continuous ownership. Certain transfers between spouses and re-acquisitions can preserve the period.

Trading test: The business must be a trading company, not an investment company. HMRC tests "wholly or mainly" trading — looking at activity, asset holdings, profit sources. Mixed companies need 50%+ trading by activity. Pure property-letting businesses don't qualify (with limited exceptions for hotels and holiday lets).

April 2026 reform — BR capped at £1m

Announced in Autumn Budget 2024, taking effect from 6 April 2026:

£1 million cap on 100% Business Relief and 100% Agricultural Property Relief combined per estate.
Above £1m: 50% relief applies (effective tax rate 20% instead of 40% on the excess).
AIM shares: Reduced to 50% relief from current 50% for above-cap, with cap at the same £1m.
Transferable cap: Spouses can transfer unused cap, doubling joint family limit to £2m of 100% relief.

This is a major reform affecting business owners, AIM investors, and family farmers. Estate planning before April 2026 (lifetime gifts, trust transfers) is being intensified by tax advisers. Note that lifetime gifts of qualifying business assets retain BR (subject to 7-year rule) — gifting a business worth £3m before April 2026 to children locks in 100% relief if the donor survives 7 years.

Three worked examples (UK 2025/26)

Example 1: £500k unquoted trading company, 100% BR

Imran owns 100% of a trading company shares worth £500,000. Held 5 years. Other estate £400,000.

Calculation: Shares get 100% BR = £0 taxable on shares. Other estate £400k vs £325k NRB = £75k taxable × 40% = £30,000 IHT. Without BR, total IHT would have been £230,000.

Example 2: £800k AIM portfolio, 50% BR

Sarah holds £800k of qualifying AIM-listed shares for 4 years. Other estate £600k.

Calculation: AIM gets 50% BR → £400k taxable. Other estate £600k. Total taxable £1m, less NRB £325k = £675k × 40% = £270,000 IHT. Without BR, £475,000 IHT.

Example 3: Post-April-2026: £2.5m trading company

Looking ahead — Helen dies in 2027 with a £2.5m unquoted trading company. Cap £1m.

Post-reform calculation: First £1m 100% BR = £0. Above-cap £1.5m at 50% BR → £750k taxable. Plus other estate. Effective IHT on the £1.5m above cap: £750k × 40% = £300k. £300,000 IHT vs £0 pre-reform. Major hit for substantial business owners.

Common mistakes to avoid

Investing in AIM shares for IHT then selling within 2 years — relief is lost without continuous holding.
Holding investment-only assets (property-letting, share-only holdcos) and assuming BR applies — must be trading.
Forgetting the April 2026 reform — large business estates need urgent re-planning.
Mixing trading and investment activities and not maintaining 50%+ trading mix — can disqualify entire holding.
Failing to transfer between spouses and resetting the 2-year period — careful documentation needed.
Assuming all unquoted shares qualify — must be in a trading company, not an investment vehicle.
Believing OEIC/Unit Trust holdings of AIM portfolios qualify — only directly-held AIM shares.

When to use this calculator

Use this calculator when planning your IHT exposure as a business owner, AIM investor, or family farmer. Particularly important now (May 2026) as the April 2026 cap reforms take effect. Reassess every 1-2 years for valuation changes and after any business activity shift (acquisitions, asset sales, repatriations).

Regional differences (Scotland, Wales, Northern Ireland)

UK Inheritance Tax is UK-wide with identical £325,000 nil-rate band, £175,000 residence nil-rate band, 40% rate (36% if 10%+ to charity), and 7-year gift rules across England, Wales, Scotland, and Northern Ireland. Devolution does not affect IHT. The exception is some Scottish-specific terminology (e.g. "executor-dative" instead of "personal representative"), but the substantive tax rules are uniform. Crown Dependencies (Isle of Man, Jersey, Guernsey) have their own (much lower or zero) IHT regimes.

IHT Business Relief Calculator — UK 2025/26