Business Relief, Trusts and Inheritance Tax: Key Changes for SME Owners

The UK government has published draft legislation outlining reforms to Business Relief (formerly known as Business Property Relief) and Agricultural Property Relief, set to take effect from 6 April 2026.

Update – July 2025: Draft Legislation Confirms April 2026 Reforms

On 21 July 2025, the UK government published draft legislation confirming how reforms to Business Relief (formerly Business Property Relief) and Agricultural Property Relief will be implemented from 6 April 2026. These changes will affect how inheritance tax (IHT) applies to business assets, including shares in private companies and interests in trading partnerships. While many of the proposals were announced in October 2024, the new draft legislation confirms the government’s intention to proceed largely as planned. These changes mark a shift in approach that may have practical implications for business owners considering succession, family trusts, or long-term estate planning.

Business Relief – A Quick Recap

Business Relief (BR) is a long-standing inheritance tax relief that can provide up to 100% exemption from IHT on qualifying business assets. This includes:

Shares in unlisted trading companies

Certain types of business property

Business or partnership interests

To qualify, the asset typically needs to have been owned for at least two years, and the business must be actively trading for profit.

What’s Changing from 6 April 2026?

From April 2026, the amount of relief available under BR and APR will be capped for the first time. The key changes are:

Trusts created before 30 October 2024 will each retain a separate £1m cap.

A £1 million cap per individual for full (100%) relief.

Business assets above that threshold will only receive 50% relief, resulting in an effective IHT charge of 20%.

The cap does not transfer between spouses or civil partners.

The £1m allowance resets on a rolling 7-year basis for lifetime gifts.

Trusts created after 30 October 2024 will share a combined £1m cap, proportioned across multiple trusts by the same settlor.
Trusts created before 30 October 2024 will each retain a separate £1m cap.

These rules will apply to both lifetime gifts and business assets passed on at death.

The Ongoing Role of Trusts

Despite the changes, trusts continue to offer important benefits for business owners thinking about succession and asset protection.
When used appropriately, trusts can help:

Control how business interests are accessed by family members.

Protect assets in the event of divorce, bankruptcy or poor financial management.
Maintain continuity of ownership within the family.
Adapt to changing family or business circumstances over time.

Trusts remain relevant—but the way they’re structured, and when they’re put in place, will matter more than ever under the new rules.

Inheritance Tax Charges on Trusts

Trusts are subject to specific IHT rules:

Entry charges (when assets are placed into trust)

Periodic charges (every 10 years)
Exit charges (when assets leave the trust)

Under the current system, BR-qualifying assets often escape these charges entirely if they benefit from 100% relief. From 6 April 2026:

Only the first £1m of BR-qualifying assets settled into trust will attract 100% relief.

Above that, 50% relief applies, meaning:
- 10% entry charge (rather than 20%) on assets over the threshold
- 3% periodic charge (rather than 6%)
Exit charges will be based on the gross value of assets, potentially increasing the tax due on distributions.
Trusts created before 6 April 2026 (and settled with qualifying assets before that date) will still benefit from full relief under the current rules.

What This Means for You

If you’re an SME owner with a business valued over £1 million, or if you’re using (or considering) trusts as part of your estate planning, these changes could have a direct impact on your succession strategy.
Now is a good time to:

Model how these changes affect your current structure or plans.

Review existing trusts, especially if they approach a 10-year charge after April 2026.
Consider making gifts or settling assets into trust before April 2026.
Update your will to ensure BR is used efficiently and not lost unintentionally.
Weigh up lifetime gifts vs. trusts, especially where business control and protection are concerns.

Final Thoughts

The introduction of a cap on Business Relief and changes to the relief’s application to trusts represent a notable shift in estate planning principles for business owners. While the reliefs remain, their limits mean that timing and structure will be key to achieving tax-efficient outcomes. For many, a review of existing plans and options ahead of April 2026 will be worthwhile.
If you would like to explore how these reforms may affect your business or estate plans, our team is available to assist with clear, practical advice tailored to your situation.

Business Relief, Trusts and Inheritance Tax: Key Changes for SME Owners

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The information contained within this article is for information purposes only and does not constitute investment advice. It is not an offer to purchase or sell any particular asset and it does not contain all of the information which an investor may require in order to make an investment decision. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future.

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