A new world for business owners: understanding the new IHT rules

From 6 April 2026, the inheritance tax (IHT) treatment of trading businesses, agricultural property and AIM-listed shares has changed in a way that materially affects almost every successful business owner. For most, the tax bill on second death will be larger (sometimes much larger) than expected. The right action now could potentially protect substantial value, while doing nothing could well be costly.

Here, we set out what has changed, what it means in numbers and the practical levers business owners should be revisiting.

Until 5 April 2026, qualifying business assets held at death attracted Business Relief (BR) at 100%, with no upper limit. The same was broadly true of qualifying agricultural property under Agricultural Property Relief (APR). For business-owning families this was, in effect, a complete shelter from inheritance tax on the trading value of the business.

Under the new regime:

• The first £2.5m of qualifying BR/APR assets per person continues to attract 100% relief

• Above that threshold, relief drops to 50%, meaning an effective IHT rate of 20% on value above the allowance

• The £2.5m allowance is transferable between spouses and civil partners, so a couple can in principle shelter up to £5m at 100%

• The £2.5m allowance applies jointly across BR and APR, it is not £2.5m for each

• Trusts established before 30 October 2024 each retain their own £2.5m allowance. Trusts established on or after that date share a single £2.5m allowance between them

• Separately, AIM-listed shares qualifying for BR also only receive IHT relief at 50% and do not benefit from 100% relief under £2.5m.

Alongside the IHT changes, capital gains tax rates have already moved, and Business Asset Disposal Relief (BADR) is being phased in at higher effective rates over the next tax year.

Pensions, currently sit outside the estate for IHT, are expected to be brought within scope from April 2027, though the legislation on this is still to be finalised.

Consider a couple — Mr and Mrs A — with a successful trading business and the wider asset position that often goes alongside it:

• Cash, ISAs, GIA and a director’s loan account: c.£3.5m

• Pensions: c.£2.3m

• Qualifying trading business: £20m

• Main residence and second property: £1.7m

• Total estate: c.£27.5m

The table below sets out their potential IHT liability on second death under three scenarios: under the old rules, after the new rules take effect on 6 April 2026 and after a sale of the business in the following tax year.

 Source: illustrative case study based on the new rules effective 6 April 2026 and the expected position post-business sale (assumes CGT on sale, less BADR; no gifting strategy). For illustrative purposes only.

The new pension rules alone add roughly £900,000 to the family’s potential IHT bill. But it is the sale of the business that produces the step change. Once the trading business is converted to cash or investments, the BR shelter is lost and the taxable estate increases by roughly £10m. Without planning, the IHT liability moves from £4.82m to £8.87m.

That swing of close to £4m of additional tax is the interaction of the new rules with a future liquidity event. It is precisely the moment at which most business owners are too busy with the deal itself to think clearly about long-term family wealth.

There are sensible answers to all of this. None of them is a silver bullet, and the right combination depends on your family’s circumstances, the structure of your business and the timeline to any exit. But the directions of travel are reasonably clear.

Planning levers worth revisiting now

• Use the £2.5m allowance (and the spouse’s if available). Together a couple can shelter up to £5m of qualifying business assets at 100%. Whether that is best held, gifted or placed in trust is a conversation worth having early –.chance to

• Consider gifts of qualifying shares from 6 April 2026. A staged programme can move significant value out of the estate while retaining 100% relief on the gifted portion at the time of transfer, you can aim to gift £2.5m each every 7 years with no immediate tax charges.

• Insure the seven-year risk. A life policy in trust can fund the IHT bill if the donor dies within seven years, protecting the family from a forced sale of the business.

• Stress-test cashflow. If the worst happened tomorrow, where does the cash come from to settle the tax, particularly if the business is still trading and the shares are not liquid?

• Review trusts established before 30 October 2024. They retain a separate £2.5m allowance, whereas trusts created on or after that date share a single allowance between them.

Tax planning doesn’t happen in a vacuum. It must be aligned with your own goals and objectives, which is why there are some important questions worth considering even if a business sale is not on the immediate horizon.

What is your magic number? If the business were sold tomorrow, how much capital would you need to maintain your lifestyle, and how much is genuinely surplus?

Are the articles and shareholders’ agreements still fit for purpose, and is share protection in place at the right level for the new valuations? If you rely on your business for the family and died prematurely what can you do to protect them.

• Is the company structure built for an exit and for tax planning that reflects your views?

• Have pre-sale options, including transfers of shares into trust, been considered while the business still attracts BR up to certain levels?

• Post-sale, is there clarity on which tax wrappers to use and whether to reinvest into trading businesses or BR-qualifying assets?

• Have you thought about the balance between a ‘fun fund’ and longer-term saving, gifting and succession?

• If a large gift is contemplated, should the seven-year mortality risk be insured?

There’s always confusion when new tax rules come into place, especially for an area as complex as business relief. If you’re not sure exactly where to start, here are three key things to remember:

1. Pensions are no longer the safe harbour they were

From April 2027, pensions are expected to fall within the estate for IHT purposes. Legislation is still to follow, but the direction of travel is set. For most, pensions remain the most tax-efficient way to save for retirement, but what they no longer are is a tidy way to pass wealth tax-free to the next generation.

2. Action can be taken now

Tackle the administration and revisit existing planning to manage the changes proactively. Bring forward gifts where the family is comfortable doing so, give and live, rather than hold and hope. Insure the risks while insurance remains available and affordable.

3. Starting with the end in mind is the cheapest planning of all

The case study above is not unusual in shape, and the £4m swing in IHT exposure between the ‘do nothing’ and ‘plan ahead’ positions is typical for families at this scale. The cost of planning early is, in almost every case, a small fraction of the cost of not planning at all.

We work with business owners, their families and their professional advisers through every stage of the business journey from start-up and growth through to maturity and exit, and into the long arc of personal wealth that follows. If you would like to discuss how the new rules affect a specific client situation, or to arrange an introductory conversation, speak to your usual Evelyn Partners contact or book an appointment.