Business Relief used to be the relief that made family businesses and farms largely invisible to Inheritance Tax. From April 2026 it still exists, but with a ceiling, and families who planned around the old rules need to look again.
What Business Relief does
Business Relief reduces the value of qualifying business property before Inheritance Tax is worked out. GOV.UK says you can get relief of either 100% or 50% on some of an estate’s business assets, and that it is claimed on form IHT400 with schedule IHT413 (GOV.UK, Business Relief for Inheritance Tax, checked 1 November 2026).
The relief applies to relevant business property: a business or an interest in one, and shares in unlisted companies. The Act excludes anything carried on otherwise than for gain from counting as a business at all (Inheritance Tax Act 1984, section 103, checked 1 November 2026).
The £2.5 million allowance from 6 April 2026
For deaths on or after 6 April 2026, 100% relief no longer has unlimited reach. GOV.UK says 100% relief is capped at £2.5 million for qualifying business or agricultural property, including property held in trust (GOV.UK, Business Relief for Inheritance Tax, checked 1 November 2026). Qualifying property above the allowance gets 50% relief instead.
The figure is in the statute, inserted by the Finance Act 2026. The 100% relief allowance is equal to £2.5 million, less the relief already used on chargeable transfers in the seven years before (Inheritance Tax Act 1984, section 124D, checked 1 November 2026).
Two consequences follow. The allowance is shared between business and agricultural property, so a family with both has one £2.5 million to split between them. And a lifetime gift of business property that used the allowance reduces what is left for the estate if the giver dies within seven years.
A spouse’s unused allowance can be passed on
The allowance transfers between spouses and civil partners, in the same way as the main nil rate band. GOV.UK says that where the person who died had a spouse or civil partner who died before them, you can transfer any unused allowance, which could make the allowance up to £5 million (GOV.UK, Business Relief for Inheritance Tax, checked 1 November 2026).
There is a deadline for the claim: four years after the death, or six months after you started acting as executor, whichever is later (GOV.UK, Business Relief for Inheritance Tax, checked 1 November 2026). Where the spouse or civil partner died before 6 April 2026, GOV.UK says the full £2.5 million allowance can be transferred, even if their estate has already claimed Business Relief. Our page on transferring a late spouse’s unused allowance covers the main allowance, which works alongside this one.
What gets 100% and what only gets 50%
The 100% rate, up to the allowance, is for unlisted trading businesses and interests in them. GOV.UK lists 100% relief on a business or interest in a business, and on shares in an unlisted company (GOV.UK, Business Relief for Inheritance Tax, checked 1 November 2026).
For deaths from 6 April 2026, several kinds of property get 50%. GOV.UK lists qualifying property above the £2.5 million allowance; shares traded on markets that do not meet HM Revenue and Customs’ (HMRC’s) definition of listed, such as the Alternative Investment Market; shares controlling more than half the votes in a listed company; and land, buildings or machinery the person owned but used in a business they were a partner in or controlled (GOV.UK, Business Relief for Inheritance Tax, checked 1 November 2026).
The AIM point matters to a particular kind of estate. Portfolios of AIM shares were bought for decades because they could escape Inheritance Tax altogether after two years. They now reduce the value by half rather than removing it.
The two-year rule
The business has to have been owned for long enough before the death. The Act is short on this: property is not relevant business property unless it was owned by the transferor throughout the two years immediately preceding the transfer (Inheritance Tax Act 1984, section 106, checked 1 November 2026).
GOV.UK repeats it in plain terms: you can only get relief if the deceased owned the business or asset for at least two years before they died (GOV.UK, Business Relief for Inheritance Tax, checked 1 November 2026). Buying qualifying shares late in life therefore does nothing until two years have passed.
Investment and letting businesses do not qualify
This exclusion reaches estates built on property. The Act says property is not relevant business property if the business consists wholly or mainly of dealing in securities, stocks or shares, land or buildings, or making or holding investments (Inheritance Tax Act 1984, section 105, checked 1 November 2026).
In practice, a portfolio of let houses or flats is an investment business for this purpose, however much work it involves, and it gets no Business Relief. The same goes for a company whose main activity is holding property or investments. GOV.UK also excludes a business that is being sold or wound up, with limited exceptions (GOV.UK, Business Relief for Inheritance Tax, checked 1 November 2026).
Valuing shares in a private company
Shares that are not traded anywhere have no market price, so they are valued by negotiation with HMRC. The work is done by HMRC’s Shares and Assets Valuation team, which values unquoted shares for Inheritance Tax and Capital Gains Tax (GOV.UK, Shares and assets valuations for tax, checked 1 November 2026).
Expect questions rather than a quick agreement where the company is a family trading business with no recent sales of shares. The company’s accounts, its articles, any shareholder agreement and a professional valuation are what HMRC will want to see, and a value that is too optimistic about relief tends to be revisited.
Paying by instalments
Where tax is still due on business property, it does not have to be paid in one sum. The Act allows tax attributable to qualifying property to be paid by ten equal yearly instalments (Inheritance Tax Act 1984, section 227, checked 1 November 2026).
Under the section as amended by the Finance Act 2026, those instalments carry no interest if each is paid on time where the tax relates to value reduced by Business or Agricultural Relief, or to shares, securities or a business interest. That does not extend to unrelieved shares in a company mainly dealing in securities, land or buildings, or making or holding investments (Inheritance Tax Act 1984, section 234, checked 1 November 2026). Our page on paying an Inheritance Tax bill covers the deadline and the other routes.
This page is not enough to rely on where the business is a letting or investment company, where business property is held in a trust, or where a farm mixes farming with other uses; each of those turns on facts this page cannot see. It explains the rules; it is not advice on structuring a business or an estate. Where a family business or farm is worth anything near the allowance, the planning decisions belong with an adviser who can see the whole picture, and our Inheritance Tax guide sets out the main allowances first.