Definition
Business Property Relief (BPR) is an inheritance tax relief that reduces qualifying business assets' taxable value by 50% or 100%, enabling family businesses to pass to heirs without being sold to pay tax.
Major reforms from April 2026 will significantly limit this protection for assets exceeding £1 million.
What Does Business Property Relief Mean?
Established under the Inheritance Tax Act 1984 (sections 103-114), Business Property Relief prevents family businesses being sold to pay inheritance tax. BPR reduces qualifying business assets' taxable value by 100% or 50%, depending on asset type. Section 106 requires continuous ownership for two years before death or transfer. Without BPR, a 40% tax bill on a £2 million family company would require £800,000—often forcing business sale.
100% relief applies to sole trader businesses, partnership interests, unquoted company shares (including AIM shares), and controlling shareholdings. 50% relief applies to land, buildings, or machinery you own personally but used by a company or partnership you control. The business must be "wholly or mainly trading"—more than 50% of activities must be active trading, not passive investment. Businesses dealing in securities, land, or holding investments don't qualify. This critically excludes buy-to-let property portfolios, even in limited companies.
Emma owns 75% of an unquoted manufacturing company valued at £3 million. Her £2.25 million shareholding qualifies for 100% BPR, saving £900,000. Conversely, James owns a company holding rental properties worth £2 million. Because it's mainly investment property, the £2 million receives no BPR protection and faces full 40% tax.
Critical 2026 Reforms: From 6 April 2026, a new £1 million combined allowance applies to BPR and Agricultural Property Relief together. Only the first £1 million receives 100% relief; amounts exceeding £1 million receive just 50% relief (effective 20% tax rate). This allowance is per person and NOT transferable to spouses. AIM shares will receive only 50% relief regardless of value from April 2026. Reforms apply to deaths from 6 April 2026 onwards, including lifetime gifts made from 30 October 2024 where the donor dies within seven years.
Common Questions
"Will my children pay inheritance tax on my family company shares?" It depends whether the company is "wholly or mainly trading" and whether you've owned shares for two years. If actively trading (not mainly investments) and held two years, shares qualify for 100% relief currently. From April 2026, only £1 million receives full relief; excess gets 50% relief (20% effective rate).
"Does Business Property Relief apply to buy-to-let property in a limited company?" No. Buy-to-let portfolios are investment businesses, not trading businesses, so don't qualify for BPR even in a company. The "wholly or mainly trading" test requires over 50% active trading. Residential buy-to-let is investment activity facing 40% inheritance tax.
"Can spouses get £2 million of Business Property Relief between them after 2026?" No. From April 2026, the £1 million allowance is per person and NOT transferable between spouses. Even married couples each only get £1 million at 100% relief. Excess receives 50% relief (20% effective tax charge).
Common Misconceptions
Myth: "As long as I own a business, I don't have to worry about inheritance tax."
Reality: BPR has strict conditions. Your business must be "wholly or mainly trading" (not investment-focused), owned for two years, with no binding contract for sale. Many structures fail—particularly property investment companies, businesses with large cash surpluses, or companies deriving most income from investments. From April 2026, only the first £1 million qualifies for 100% relief.
Myth: "Surplus cash in my trading company is protected from inheritance tax."
Reality: Surplus cash not required for future business use is an "excepted asset" and receives NO BPR protection, even if the rest qualifies. HMRC examines whether cash reserves are genuinely needed for business purposes or are passive holdings. Large cash balances create unexpected tax liabilities even in otherwise qualifying businesses.
Related Terms
Understanding Business Property Relief connects to these related concepts:
- Inheritance Tax: BPR reduces or eliminates the 40% inheritance tax liability on qualifying business assets.
- Agricultural Property Relief: From April 2026, BPR and APR share a combined £1 million allowance.
- Unquoted Company: Unquoted company shares qualify for 100% BPR under current rules.
- Business Succession Planning: BPR enables tax-efficient succession; planning must address BPR qualification rules.
- Trading Company: Only "wholly or mainly trading" companies qualify; investment companies do not.
Related Articles
- Understanding Inheritance Tax in the UK: Explains why BPR exists and how it fits into tax planning.
- Estate Planning for Business Owners: Covers how business ownership affects estate planning with BPR.
- Business Succession Planning: Explains structuring ownership to maximize BPR.
- 2026 Inheritance Tax Reforms: Details the £1 million cap and implications.
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Legal Disclaimer: This glossary entry provides general information and does not constitute legal advice. Business Property Relief rules are complex and depend on specific circumstances. Tax legislation changes regularly, with major reforms taking effect in April 2026. This information is current as of October 2025; consult a qualified tax advisor or solicitor for advice specific to your situation.