The inheritance tax (IHT) agricultural relief U-turns have been well publicised. However, inheritance tax business relief is also changing. If you own a business, or plan to pass one on, it is worth understanding where things now stand.
At present, qualifying business property in a deceased’s estate qualifies for 100% relief, whatever the value of that business property.
This means an unincorporated business, or a shareholding in an unlisted company, can pass to the next generation without any IHT.
Business relief is not automatic, though. Conditions must be met. Most importantly, the property must have been owned for two years.
What changed, and when?
October 2024 Budget
In October 2024, the government proposed a restriction.
From 6 April 2026, it planned to limit 100% business relief to £1 million.
Above £1 million, relief would have been given at 50%. So, on a business valued at £5 million, IHT would have risen from zero to £800,000.
That assumes the nil rate bands are used against other assets.
November 2025 Budget
The original plan did not allow the £1 million allowance to be transferred between spouses or civil partners.
Then, the first U-turn came.
The government said the allowance will be transferable to a surviving spouse or civil partner. This will apply even if the first death occurs before 6 April 2026.
As a result, the IHT on a £5 million business could fall from £800,000 to £600,000.
December 2025 U-turn
Just before Christmas, the government made another announcement.
It said the 100% allowance will now be capped at £2.5 million. It will stay at this level until at least 5 April 2031.
This change means a £5 million business property will again be fully exempt. That applies where a surviving spouse or civil partner’s allowance is available.
So, while the headlines focused on agricultural relief, inheritance tax business relief still deserves attention.
What about cohabiting partners?
The position is different for couples who are not married and not in a civil partnership.
In those cases, the £2.5 million 100% allowance is not transferable to a surviving partner.
That can create a potential IHT cost of £500,000.
In addition, nil rate bands of up to £500,000 are also not transferable. That is another potential IHT loss of £200,000.
Many long-term couples are happy as they are. Even so, the IHT implications of remaining unmarried could merit a rethink.
Some examples of how the £2.5 million 100% allowance will work can be found here. Note that the examples are based on agricultural property, but the principle is the same.