Inheritance Tax (IHT) can significantly impact the estate of a deceased person, particularly when business assets are involved. However, Business Relief (BR) is a valuable tax relief offered by HMRC that allows qualifying business assets to be passed on free or with reduced Inheritance Tax (IHT). BR reduces the taxable value of a business or its assets for IHT purposes. Business ownership is included in the estate for IHT.
How does Business Relief Works?
Business Relief applies to businesses, shares and certain assets that are used in a trading business. BR can provide either 100% or 50% relief on the eligible assets which can be transferred either during the owner’s lifetime or through their will. To qualify for the relief, the business or asses must have been owned for at least two years before being passed on.
Inheriting a business from your spouse or civil partner
If you inherit a qualifying business from your spouse or civil partner, you do not necessarily have to start the two-year ownership period from scratch. Their period of ownership can count towards yours, which may help you meet the two-year Business Relief rule.
The spouse or civil partner Inheritance Tax exemption is a separate rule.
Business Relief on lifetime gifts: When does it still apply?
If you give away qualifying business property and die within seven years, Business Relief may still be available. The recipient will usually need to keep the asset, or qualifying replacement property, until your death.
Since 6 April 2026, qualifying gifts made on or after 30 October 2024 can also use part of your £2.5 million Business Relief and Agricultural Relief allowance.
If you are gifting company shares, see our guide to the tax implications of gifting shares to family. If you continue to benefit from an asset after giving it away, the gift-with-reservation rules may apply.
Business Relief on gifts into trust
Putting business assets into a trust can create an Inheritance Tax charge, but Business Relief may reduce the amount that is taxable. If the trustees sell the business property before you die and do not replace it with other qualifying business property, some or all of the relief could be lost if you die within seven years.
Since 6 April 2026, trusts can also have a £2.5 million allowance for qualifying Business Relief and Agricultural Relief property, although the amount available will depend on the trust rules.
For more detail, see our guide to the pros and cons of using a trust to reduce IHT.
Does Business Relief affect Capital Gains Tax?
Business Relief can reduce Inheritance Tax, but it does not remove Capital Gains Tax. Giving business assets away during your lifetime can trigger Capital Gains Tax, although how gift holdover relief works may allow the gain to be deferred.
There is generally no Capital Gains Tax charge on death, and inherited assets normally take their market value at the date of death as their Capital Gains Tax base cost, so the timing of a business transfer can make a significant difference to the overall tax position.
What qualifies for Business Relief?
Business Relief applies to specific assets, depending on their nature and structure.
100% Business Relief
The following assets qualify for 100% relief, meaning that they are completely exempt from Inheritance Tax:
- A business or an interest in a business, such as a sole-trader business or partnership interest. Relief is based on the net value of the business, including goodwill, after deducting business liabilities.
- Qualifying shares in an unlisted company.
- Certain unquoted securities, such as loan notes, where your holdings give you control of the company.
Note:
Since 6 April 2026, the 100% Business Relief rate has generally been limited to the available £2.5 million combined Business Relief and Agricultural Relief allowance. Any qualifying value above this limit will usually receive 50% relief. Shares traded on certain markets, including AIM, are also generally limited to 50% relief.
50% Business Relief
Certain assets qualify for 50% relief, reducing their taxable value by half:
- Shares in a listed company where the deceased had control (more than 50% of voting rights).
- Land, buildings, or machinery owned by a deceased person that were used in a business they either controlled or were a partner in.
- Business assets held in a trust but used in a beneficiary’s business
You can only get relief if the deceased owned the business or asset for at least 2 years before they died.
What doesn’t qualify for Business Relief?
You can’t claim Business Relief if the company:
- Deals mainly in the investment activities such as, buying and selling stocks, shares or land.
- Is property letting businesses (e.g., buy-to-let portfolios).
- Is a not-for-profit organisation.
- Is being sold, unless the buyer continues the business and pays mainly in shares
- Is being wound up, unless it is part of a process to maintain business continuity.
You can’t claim Business Relief on an asset if it:
- Qualifies for Agricultural Relief
- Was not mainly used for business in the two years before being gifted or passed in a will.
- Is not needed for future business use.
However, if part of a non-qualifying asset is used in the business, that part might qualify for Business Relief.
Example
If a property is mostly used as personal residence but a portion of it is used as office space for the business, the office space portion might qualify for Business Relief, even though rest of the property does not.
Assets that can reduce your Business Relief
Business Relief may be reduced where a business holds excepted assets. These are generally assets that have not been used mainly for the business during the relevant period or are not needed for its future use.
A common example is surplus cash that is more than the business reasonably needs for its current or future activities. Keeping clear records of why cash is being held can therefore be important when claiming Business Relief.
Common Business Relief pitfalls to avoid
Even if your business would normally qualify, a few common mistakes can put Business Relief at risk.
A binding agreement that forces your executors to sell your business interest and the surviving owners to buy it can prevent relief. By contrast, simply giving the surviving owners an option to buy will not normally have the same effect.
You should also be careful if the business is being sold, if the company is holding more cash than it genuinely needs, or if you have not met the usual two-year ownership requirement. Each of these can reduce or prevent the Business Relief available.
Does a property business qualify for Business Relief?
Property letting businesses will usually not qualify for Business Relief because they are mainly treated as investment activities. This includes most buy-to-let businesses and furnished holiday lets, although exceptional cases involving significant additional services may be treated differently.
Businesses mainly dealing in land or buildings are also excluded. However, a genuine property development or construction business may qualify, depending on what the business actually does.
For a broader look at property and estate planning, see our guide to wider IHT planning for landlords.
How to Claim Business Relief?
To claim Business Relief, the executor or administrator of the estate must apply when valuing the estate for IHT purposes.
This involves submitting relevant documentation and demonstrating that the assets qualify under HMRC’s rules. For claiming relief, executor or administrator should fill in both form IHT400 (Inheritance Tax account) and schedule IHT413 (Business or partnership interests and assets).
You must use the market value of the business or asset when calculating relief at 50%.
Business Relief examples: how much Inheritance Tax could you pay?
These examples show how Business Relief can reduce the value of a business that is subject to Inheritance Tax.
David owns qualifying shares in his trading company worth £900,000. He also personally owns a warehouse worth £400,000 that is used by the company, which he controls.
Calculation | Amount |
|---|---|
Trading company shares | £900,000 |
Business Relief at 100% | (£900,000) |
Warehouse | £400,000 |
Business Relief at 50% | (£200,000) |
Value left after Business Relief | £200,000 |
Nil-rate band | (£325,000) |
Inheritance Tax due | £0 |
After Business Relief, only £200,000 remains chargeable, so David’s £325,000 nil-rate band covers the full amount. Without Business Relief, the Inheritance Tax bill would be £390,000.
Documentation Required
- Business financial statements and records
- Ownership proof of the business assets
- Evidence of asset usage for business purposes
- Valuation reports from independent professionals
Planning for Business Relief
Effective estate planning helps business owners ensure smooth operations and financial stability. Business Relief protects businesses from large tax liabilities, allowing successors to inherit assets without high tax burdens. Strategies include:
- Ensure business assets qualify under HMRC guidelines
- Structure ownership to maintain eligibility for 100% relief.
- Keep detailed records of asset use and business activities.
- Regularly revie business structures to prevent disqualification due to investment-focused activities.
Additional Considerations for Business Relief
- If a business is sold before death, the proceeds may not qualify for Business Relief, requiring alternative tax planning.
- Business Relief can be combined with trusts and gifting strategies to further reduce Inheritance Tax (IHT) liabilities.
- Succession planning, including passing on business interests should be carefully structured to ensure relief is not lost.
Autumn Budget Changes affecting BR
Changes to BR will take effect from 6 April 2026. The 100% rate of relief will continue to apply for the first £1m of the business property, falling to 50% for any value above this threshold. Additionally, the rate of BR will also fall to 50% in all circumstances for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM.
Conclusion
Business Relief is a crucial tool for reducing Inheritance Tax liabilities and ensuring the seamless transfer of business assets. By understanding this relief, business owners can safeguard their legacy, minimise tax burdens, and secure the financial stability of their successors. Seeking expert financial and legal advice is essential to ensure that business assets are structured effectively, and all available reliefs are fully utilised.
By understanding and utilising Business Relief for Inheritance Tax, business owners can create a more tax-efficient estate plan, ensuring financial security for their successors.
Need expert advice on maximising business relief?
Contact us today for efficient and
hassle-free assistance.
Frequently Asked Questions
Usually not. Most buy-to-let businesses are treated as investment activities, so Business Relief is unlikely to apply. The final position depends on how the business actually operates.
Yes. Since 6 April 2026, qualifying Alternative Investment Market shares receive 50% Business Relief instead of 100%. They also do not use your £2.5 million 100% relief allowance.
Yes. Any unused Business Relief and Agricultural Relief allowance from your late spouse or civil partner can usually be transferred to your estate, which may increase the available allowance from £2.5 million to £5 million. A claim is required.
Usually at least two years. There are some exceptions, including certain inherited or replacement business assets.
Business Relief applies to qualifying business property, while Agricultural Relief applies to qualifying agricultural property. If both apply to the same value, Agricultural Relief normally takes priority. See our guide to Agricultural Relief for Inheritance Tax.
- Property Investor and Property Developer: What Are the Tax Differences? - 13 March 2026
- HMRC’s Nudge Letters on Business Asset Disposal Relief (BADR) - 24 February 2026
- HS281 Capital Gains Tax Civil Partners and Spouses - 15 October 2025
