Inheritance tax business relief where do we stand now
- 13th January 2026
Changes to inheritance tax business relief have followed a similar path to the widely reported agricultural relief revisions, with a series of announcements and subsequent U-turns creating understandable confusion for business owners planning succession.
At present, qualifying business property attracts 100 percent inheritance tax relief regardless of value. This allows an unincorporated business or shares in an unlisted company to pass to the next generation without an inheritance tax charge, provided the conditions are met. One of the most important of these is the two-year ownership requirement.
The position looked very different following the October 2024 Budget. At that stage, the government proposed limiting full relief to the first £1 million of qualifying business property from 6 April 2026, with any excess receiving relief at only 50 percent. For a business valued at £5 million, this would have created an inheritance tax bill of £800,000 where none previously existed, assuming nil rate bands were used elsewhere.
A partial reversal followed in the November 2025 Budget when the government confirmed that the £1 million allowance would be transferable between spouses and civil partners, even where the first death occurred before April 2026. This reduced the potential inheritance tax exposure on the same £5 million business to £600,000 where both allowances were available.
A further U-turn was announced shortly before Christmas 2025. The government confirmed that the 100 percent business relief allowance will now be capped at £2.5 million and frozen at that level until at least 5 April 2031. This means that where a surviving spouse or civil partner’s allowance can be used, a £5 million business can once again pass free of inheritance tax.
However, this protection does not extend to cohabiting partners. Where a couple are unmarried and not in a civil partnership, the £2.5 million allowance is not transferable. This can result in an inheritance tax charge of £500,000 on the business alone, with a further potential loss of up to £200,000 due to non-transferable nil rate bands.
Vicky Prior, Partner, comments, “These changes underline how important relationship status and ownership structure are in inheritance tax planning. For business owners, assumptions that were once safe no longer hold and the cost of getting it wrong can be substantial.”
While many long-term couples may be comfortable with their current arrangements, the inheritance tax consequences of remaining unmarried are now significant enough to justify a review as part of wider succession planning.
Examples illustrating how the £2.5 million allowance operates are available on HMRC guidance pages here, noting that while many refer to agricultural property, the same principles apply to business relief.
All data and figures referred to in our news section are correct at the date of publishing and should not be relied upon as still current.
