Planning for Inheritance Tax has become increasingly complex for business owners in recent years. With rules changing frequently and often lacking clarity, making confident long-term decisions has not always been straightforward.
Since Autumn 2024, a series of Budget and ad-hoc announcements have reshaped expectations around Business Property Relief (BPR). Many owner-managed and family businesses have faced uncertainty over whether they could continue to pass on their businesses without the disruption of a tax charge.
The government’s decision, announced towards the end of 2025, to increase the threshold for full BPR from £1 million to £2.5 million provided a welcome degree of clarity. While it does not reverse the wider reforms, it does restore some balance and gives business owners greater confidence to plan ahead.
For many, this renewed certainty is as important as the headline figures themselves.
BPR has always reflected a key reality for trading businesses. While they may be valuable, much of that value is tied up in assets such as property, equipment or long-established goodwill rather than readily available cash.
Under the original 2024 proposals, only the first £1 million of qualifying business assets would have qualified for full relief. Anything above that would have been subject to Inheritance Tax at an effective rate of 20 percent. For many businesses, particularly in sectors such as agriculture and food production, this created the prospect of having to sell assets or take on debt to meet tax liabilities.
The revised £2.5 million threshold significantly changes that position. When combined with the ability to transfer unused allowances between spouses or civil partners, it becomes possible for families to pass on up to £5 million of qualifying assets with full relief.
For a large proportion of business owners, this reduces the immediate pressure on succession planning and helps to safeguard business continuity.
Despite this positive shift, it is important not to view the changes as a full return to the previous regime.
Relief above the £2.5 million threshold will still be restricted to 50 percent, and there is a clear policy direction away from unlimited relief for larger estates. While the revised threshold provides reassurance, it also signals a more measured approach to how reliefs are applied.
This means that, although the position is more favourable than initially proposed, it is still far less generous than it was prior to the 2024 Budget changes.
The key takeaway for business owners is that BPR remains a valuable planning tool, but it can no longer be assumed to offer complete protection indefinitely. With policy changes continuing to evolve, further reforms cannot be ruled out.
The revised threshold creates a vital opportunity for business owners to revisit their succession plans with greater clarity.
One of the most important considerations in this process is timing. Early planning, including lifetime transfers of shares or business interests, can help preserve flexibility and avoid unnecessary constraints at a later stage. Leaving decisions too late often limits the options available.
Structure is equally important. BPR is not applied automatically. Eligibility depends on how a business operates, how its assets are held and how those assets are used. As businesses evolve, their structure and use of assets can change in ways that affect eligibility for relief.
Regular reviews are therefore essential to ensure that any entitlement to relief remains intact and aligned with the organisation’s current operations.
While tax efficiency is an important part of succession planning, it should support, rather than drive, business decisions.
In practice, the most effective succession strategies are those built on strong commercial foundations. Clear governance, well-defined succession plans and open communication within families often play a greater role in preserving value than any single tax relief.
By combining practical business considerations with careful tax planning, owners can create more robust and resilient transition strategies.
The introduction of the increased BPR threshold will be welcomed by many business owners as a pragmatic amendment to earlier proposals. It reduces the number of estates likely to face higher Inheritance Tax bills and helps ensure that viable businesses can be passed on intact.
However, it also serves as a reminder of how quickly the tax landscape can change. The events of the past two years highlight the importance of remaining proactive and adaptable.
For business owners, now is an ideal time to review existing plans, challenge assumptions and ensure that succession strategies are fit for purpose in both the current environment and the years ahead.
Duncan & Toplis provides tailored advice to business owners, supporting effective succession planning and helping to maximise available tax reliefs.
Our specialists work closely with you to ensure your plans are structured, compliant and aligned with your long-term goals.
For more information, contact Nicholas Smith.
