For many years, the ability to pass on a family business or a farm was protected by a powerful set of tax reliefs. Business Property Relief (BPR) and Agricultural Property Relief (APR) often allowed these assets to pass to the next generation with a 100% exemption from Inheritance Tax (IHT). The logic was simple: it prevented the need to sell a viable business or break up a farm just to pay a tax bill.
However, from 6 April 2026, the landscape changes. The government is introducing a new cap that will bring many more family-run enterprises into the scope of IHT. At CoreAcc Accountants, we are working with business owners now to review their succession plans before these new limits take effect.
Understanding the New £2.5 Million Cap
The headline change is that 100% relief will no longer be unlimited. Instead, a combined cap of £2.5 million will apply to the total value of business and agricultural assets in an estate.
Here is how the new math works:
● The first £2.5 million of qualifying assets will still benefit from 100% relief.
● Any value above this £2.5 million threshold will receive a reduced relief of 50%.
● Because the standard IHT rate is 40%, applying 50% relief results in an effective tax rate of 20% on everything over the cap.
While this allowance is generous for smaller trading firms and family farms, it creates a significant new liability for successful mid-sized companies and larger landed estates.
The Spouse Benefit: A £5 Million Shield
One positive update in the final legislation is that this £2.5 million allowance is transferable between spouses and civil partners. This mirrors the way the standard Nil-Rate Band works.
If a husband and wife both own shares in a family business, they can effectively shelter up to £5 million of business value from Inheritance Tax. If one spouse dies and does not use their allowance, the survivor can claim the unused portion. At CoreAcc Accountants, we emphasize that this makes the way you structure share ownership between partners more critical than ever.
The Seven-Year Rule and Lifetime Gifting
The new rules don't just apply to deaths; they also affect lifetime gifts. If you give away business shares today and pass away after 6 April 2026 (and within seven years of the gift), the new £2.5 million cap will apply to that failed gift.
However, there is a strategic opportunity here. The £2.5 million allowance is not a single lifetime limit; it refreshes every seven years for lifetime transfers. This means that proactive families may be able to pass on segments of the business over a longer period to maximize the 100% relief brackets.
Funding the Tax: The 10-Year Option
If your business value exceeds the cap and a tax bill is due, the government has confirmed that you can pay the IHT in equal, interest-free instalments over 10 years. While this helps with cash flow, a 20% tax bill on a multimillion-pound business is still a significant sum that requires careful financial planning—possibly involving life insurance or designated cash reserves within the company.
How CoreAcc Accountants Can Help
Succession planning is about more than just tax; it’s about ensuring the business you’ve built can survive for the next generation. CoreAcc Accountants provides the technical expertise to make that happen. We can assist you with:
● Estate Valuations: We will help you determine the current market value of your business to see if you are likely to exceed the £2.5 million threshold.
● Shareholder Agreements: We can review your agreements to ensure they allow for tax-efficient transfers of shares between family members or spouses.
● Gifting Strategies: We’ll model the impact of lifetime gifts and help you navigate the seven-year transition rules.
● Trustee Advisory: If your business is held in a trust, we can explain how the new caps affect periodic charges and distributions.
Get in Touch
The 2026 reforms mean that standard Wills written years ago may no longer be fit for purpose. Contact CoreAcc Accountants today to ensure your legacy is protected.
