The business relief 2026 reform caps a relief that was uncapped for decades: from 6 April 2026, only the first £2,500,000 of combined business and agricultural property passes with 100% relief per person, with 50% relief above, an effective inheritance tax rate of up to 20% on the excess (gov.uk, as at August 2026, subject to change).
Check the figure first. The 100% cap is £2,500,000, not the £1,000,000 still quoted across many guides. The £1m version was the first draft, raised on 23 December 2025, so treat any page citing £1m for a death on or after 6 April 2026 as out of date. This guide covers the law of England and Wales; figures are current as at August 2026 and subject to change.
What is the business relief 2026 reform?
The business relief 2026 reform is the capping of business property relief (BPR), which until now let qualifying trading businesses and unquoted shares pass free of inheritance tax without limit. From 6 April 2026, full 100% relief is limited to a combined £2,500,000 per person for business and agricultural property, with 50% relief above, so larger business estates face a bill for the first time in a generation.
It is not a single switch. The reform pairs the 2026 cap with a flat 50% rate on AIM and other quoted shares, unused pensions entering the estate in 2027, and a longer freeze on the nil-rate bands. Together these raise inheritance tax on business-owning families.
When does each part of the reform take effect?
The reform runs across several dates, not one. The cap starts on 6 April 2026, an anti-forestalling rule reaches back to gifts made from 30 October 2024, pensions are drawn in from 2027, and the nil-rate band freeze now runs to 5 April 2031. Read in order, the dates show what applies to a death today and what is still coming.
| Date | What changed |
|---|---|
| 30 October 2024 | Autumn Budget 2024 announces the BPR and APR cap at £1,000,000. Gifts of business assets from this date can be caught by anti-forestalling rules if the giver dies on or after 6 April 2026. |
| 26 November 2025 | Budget 2025 extends the freeze on the nil-rate band, residence nil-rate band and taper threshold to 5 April 2031. |
| 23 December 2025 | The 100% relief cap is raised from £1,000,000 to £2,500,000 per person, transferable to £5,000,000 per couple. |
| 6 April 2026 | The reform takes effect: £2,500,000 at 100% relief, 50% above, and a flat 50% relief on AIM and other quoted shares. |
| 6 April 2027 | Unused pension funds are brought into the estate for inheritance tax. |
Sources: gov.uk and the House of Commons Library. As at August 2026, subject to change. Our Budget 2025 inheritance tax changes guide covers the wider package.
What changed for business property relief?
Before 6 April 2026, qualifying business property, such as a trading company or a share in a partnership, often attracted unlimited 100% relief, so most business estates passed with nothing to pay. From that date, 100% relief is capped at a combined £2,500,000 per person for business and agricultural property, and value above the cap gets 50% relief. The allowance is transferable between spouses and civil partners, so a couple can shelter up to £5,000,000 in full.
| Feature | Before 6 April 2026 | From 6 April 2026 |
|---|---|---|
| 100% relief cap | No cap on qualifying assets | First £2,500,000 combined per person |
| Relief above the cap | Not applicable | 50% relief, effective rate up to 20% |
| Transferable to a spouse | Not applicable | Yes, up to £5,000,000 per couple |
| AIM and quoted shares | Often 100% relief | Flat 50% relief, outside the cap |
| Paying the tax | Instalments available | Interest-free over 10 years on qualifying business assets |
Source: gov.uk, business relief for inheritance tax; the £2,500,000 figure was announced on 23 December 2025. As at August 2026, subject to change.
How does the reform affect AIM and quoted shares?
AIM and other qualifying quoted shares are treated separately from the main cap. From 6 April 2026 they attract a flat 50% relief on the whole holding, whatever its value, and they do not use up the £2,500,000 allowance. At the 40% inheritance tax rate, that leaves an effective rate of up to 20% on the shares.
| Asset | Relief from 6 April 2026 | Uses the £2.5m cap? |
|---|---|---|
| Unquoted trading company or partnership | 100% up to £2,500,000, then 50% | Yes |
| AIM and other qualifying quoted shares | Flat 50% on the whole holding | No, sits outside the cap |
The practical effect is that an AIM portfolio once held mainly to sit outside inheritance tax now carries an effective 20% charge on death. Whether it still earns its place is a question of return and risk, not relief alone (gov.uk, as at August 2026, subject to change).
How much inheritance tax will a business pay now?
Many business estates will still pay nothing, because the £2,500,000 cap (or £5,000,000 for a couple) covers them in full, with the nil-rate bands on top (£325,000 each, plus up to £175,000 where a home passes to direct descendants, both frozen to 5 April 2031). Where a business exceeds the cap, only the excess is affected, at 50% relief, an effective rate of up to 20%. This worked example shows the mechanics on a £4,000,000 trading company; figures are illustrative and rounded.
- Confirm the relief available. A single owner has £2,500,000 of business relief at 100%; a surviving spouse who inherited the first allowance has £5,000,000.
- Compare the business value to the allowance. On a £4,000,000 company held by one person, £2,500,000 is covered in full and £1,500,000 sits above the cap.
- Apply 50% relief to the excess. Half of the £1,500,000, so £750,000, remains taxable.
- Apply the 40% rate. Tax on £750,000 at 40% is £300,000, an effective rate of about 20% across the £1,500,000 over the cap.
- Spread the payment. That £300,000 can be paid over 10 annual instalments, interest-free on qualifying business assets, easing pressure to sell the business.
The same £4,000,000 business can pass with nothing to pay where a couple preserve both £2,500,000 allowances, because £5,000,000 of combined relief covers it in full. Preserving both allowances is central to inheritance tax planning strategies for business-owning families, and it starts with how the shares are left in the will.
What do people still get wrong about the reform?
Three misreadings come up again and again, and each can cost a family real money: that the cap is fixed at £1m, that a quick gift will sidestep it, and that AIM shares still escape inheritance tax.
The £1m figure is the biggest. Many guides written before 23 December 2025 still quote a £1,000,000 cap, since raised to £2,500,000 per person and transferable to £5,000,000 per couple. A family reading the old number may over-estimate the bill and act on a figure that no longer applies.
Next is timing on gifts. Giving the business away is not an instant fix. A gift is a potentially exempt transfer that only leaves the estate if the giver survives seven years, and gifts made on or after 30 October 2024 can be pulled back into the reformed rules if death falls on or after 6 April 2026. Keeping control or drawing income after a gift can also breach the reservation of benefit rules, so it may not work at all. Because attorneys can make only limited gifts, a plan is best set down while the owner has capacity, one reason a lasting power of attorney matters for business owners.
Third is AIM. The old assumption that AIM shares pass free of inheritance tax no longer holds. From 6 April 2026 they carry a flat 50% relief, an effective 20% charge, and holding them for longer does not change that. What happens to a company on the owner's death is a wider question covered in what happens to a business when the owner dies. You can see how we work on our pricing page.
Frequently asked questions
What is the business relief 2026 reform?
From 6 April 2026, business property relief is capped at a combined £2,500,000 per person at 100%, alongside agricultural property, with 50% relief above, an effective inheritance tax rate of up to 20% on the excess. AIM and quoted shares move to a flat 50% relief. Uncapped relief no longer applies (gov.uk, as at August 2026, subject to change).
Is the business relief cap £1 million or £2.5 million?
It is £2,500,000 per person. The £1,000,000 figure was an earlier draft, raised to £2,500,000 on 23 December 2025 and transferable to £5,000,000 per couple. Any guide citing £1m for a death on or after 6 April 2026 is out of date, so check the figure before you rely on it (House of Commons Library, as at August 2026).
How does the 2026 reform affect AIM shares?
From 6 April 2026, AIM and other qualifying quoted shares attract a flat 50% relief on the whole holding, and they do not use up the £2,500,000 allowance. At the 40% rate that is an effective inheritance tax charge of up to 20% on the shares, whatever their value or how long they have been held.
Does the business relief reform apply to lifetime gifts?
Yes. Gifts of business assets made on or after 30 October 2024 can reduce or lose the relief available on death under anti-forestalling rules if the giver dies on or after 6 April 2026 and within seven years. A gift leaves the estate only if the giver survives seven years, so last-minute transfers may not sidestep the cap.
How much inheritance tax will a business pay under the reform?
Value within the £2,500,000 cap passes at 100% relief with nothing to pay. Value above the cap gets 50% relief, so half is taxable at 40%, an effective rate of up to 20% on the excess. On a £4,000,000 business held by one person, roughly £300,000 could be due, payable over 10 interest-free instalments. A couple preserving both allowances may pay nothing on the same business.
When does the business relief reform start?
The main BPR cap applies to deaths on or after 6 April 2026. An anti-forestalling rule reaches back to gifts made from 30 October 2024, the nil-rate band freeze runs to 5 April 2031, and unused pensions enter the estate from 6 April 2027. The reform runs across several dates rather than one (gov.uk, as at August 2026, subject to change).