Business Property Relief in 2026: The £2.5m Allowance, 50% Relief and AIM Shares

If you own a family company, a farm, a share in a partnership or a portfolio of AIM shares, Business Property Relief decides how much Inheritance Tax your family pays on it. For decades it gave 100% relief on most trading businesses with no upper limit. That changed on 6 April 2026. This guide is for business owners, farmers and their families planning in 2026. It explains the new £2.5 million allowance, the 50% rate above it, how a surviving spouse inherits unused allowance, what happens to AIM shares and lifetime gifts, and what the tax looks like in pounds.

Quick answer

Business Property Relief (officially Business Relief) reduces the value of qualifying business assets for Inheritance Tax. For deaths on or after 6 April 2026, it gives 100% relief on the first £2.5 million of business and agricultural property combined, and 50% relief above that, an effective 20% tax rate at the 40% IHT rate. Unused allowance passes to a spouse or civil partner, so a couple can shelter up to £5 million.

• AIM and other not-listed shares now get 50% relief and don't use the allowance

• You must have owned the business or shares for at least 2 years

• Gifts made since 30 October 2024 use the allowance first if you die within 7 years

• Tax on relieved property can be paid in 10 equal annual instalments, interest-free

What Business Property Relief is

Inheritance Tax is charged at 40% on the value of an estate above the nil-rate band of £325,000, which can rise to £500,000 when a home passes to children or grandchildren. Without relief, a family company worth a few million pounds could create a tax bill that forces a sale. Business Property Relief, which HMRC now calls Business Relief, reduces the taxable value of qualifying business property, either by 100% or by 50%.

The relief is in the Inheritance Tax Act 1984 and applies on death and on lifetime gifts that become chargeable, for example because the donor dies within 7 years. The executor or administrator claims it when valuing the estate, using the market value of the business or asset, on form IHT400 with schedule IHT413 for business and partnership interests.

Agricultural Property Relief (APR) works alongside it for farmland and farm buildings at their agricultural value. Where property qualifies for both, APR applies, and HMRC says Business Relief may cover agricultural property, such as farmland, buildings or equipment, that isn't eligible for APR. From April 2026 the two reliefs share a single allowance.

Business Relief after April 2026

£2.5 million

100% relief allowance

APR and BPR combined, per person

50%

Relief above the allowance

Effective 20% IHT

£5 million

Couple maximum

With spouse transfer

40%

IHT rate

Above the £325,000 nil-rate band

The April 2026 reforms in brief

The October 2024 Budget announced that, from 6 April 2026, 100% relief would be capped at £1 million of combined agricultural and business property, with 50% relief above that. After heavy lobbying from farmers and family businesses, Budget 2025 made the allowance transferable between spouses and civil partners, and on 23 December 2025 the government raised it to £2.5 million. The rules were legislated in Finance Act 2026, which received Royal Assent on 18 March 2026.

The changes apply to deaths on or after 6 April 2026 and to lifetime gifts made on or after 30 October 2024 where the donor dies on or after 6 April 2026 and within 7 years. They also apply to relievable property held in trusts, with a separate allowance per trust. Shares on markets that HMRC doesn't treat as listed, mainly AIM, dropped from 100% to 50% relief.

To soften the impact, the option to pay Inheritance Tax in 10 equal annual instalments, interest-free, now covers all property qualifying for agricultural or business relief. Before the reform, instalments on shares were only available if certain conditions in section 228 of the Act were met.

What qualifies for 100% and 50% relief

100% relief (within the allowance) is available on a business or an interest in a business, such as a sole trade or a partnership share, and on shares in an unlisted company. A company counts as unlisted if its shares aren't traded on a recognised stock exchange that HMRC treats as listed.

50% relief applies to qualifying property above the allowance, and also, whatever the amount, to:

Property that only gets 50% Business Relief

0/5

• Shares traded on markets that don't meet HMRC's definition of listed, such as AIM
• Shares controlling more than 50% of the votes in a listed company
• Land, buildings or machinery you own personally that are used by a company you controlled or a partnership you were in
• Land, buildings or machinery used in the business and held in a trust you had the right to benefit from
• Qualifying 100% property above the £2.5 million allowance

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Some businesses and assets don't qualify at all. HMRC excludes businesses that mainly deal in securities, stocks or shares, land or buildings, or that mainly make or hold investments. That rules out most property letting companies, however much work they involve. Not-for-profit organisations, businesses being wound up (unless it's part of a process that lets the business carry on), and businesses subject to a binding contract of sale are also excluded, with an exception where the sale is to a company that will carry on the business in return for shares.

At asset level, relief isn't available on property that wasn't used mainly for the business in the 2 years before it was passed on, or that isn't needed for future business use. The legal test is in sections 110 and 112 of the Act, and HMRC's manual at IHTM25341 explains how excepted assets are carved out. The classic example is surplus cash: a company holding far more cash than it needs for its trading cycle can find part of its share value taxed in full. Assets used for the owner's personal benefit, like a company-owned holiday home, are treated the same way.

You must have owned the business or asset for at least 2 years before death or the gift. There are replacement and succession rules for property inherited from a spouse, but the basic 2-year test catches people who buy into a business late in life.

How the £2.5 million allowance is applied

HMRC has published a step-by-step method and an online tool for apportioning the allowance. First, deduct anything exempt, such as gifts to a spouse, civil partner or charity, because exempt property doesn't need relief. Next, apply the allowance to lifetime gifts of qualifying property made on or after 30 October 2024, starting with the oldest. Whatever's left is then shared proportionally across all the estate's property that qualifies for 100% relief; you can't choose to put it all against one asset.

Property that only ever gets 50% relief, such as AIM shares or a building you own personally and let your company use, doesn't use the allowance. It gets 50% relief regardless. Where property could qualify for either agricultural or business relief, agricultural relief applies.

Proportional sharing matters when an estate leaves different assets to different people, because each beneficiary's share bears its own slice of the tax. A will that leaves the business to one child and cash to another may need rewriting so that the tax falls where the family intends.

Passing the allowance to a spouse or civil partner

Business property left to a spouse or civil partner is exempt from Inheritance Tax anyway, so the first spouse to die often doesn't use their allowance. From 6 April 2026 the unused part can be transferred to the survivor, giving them up to £5 million. If the first spouse died before 6 April 2026, the full £2.5 million is treated as available to transfer, even if their estate claimed business relief at the time.

The transfer isn't automatic. The survivor's executors must claim it by the later of 4 years after the death or 6 months after they start acting. Together with two nil-rate bands, the government says a couple can pass on up to £5.65 million without paying Inheritance Tax, before any residence nil-rate band.

The planning point is that leaving everything to a spouse no longer wastes the business allowance, but it does concentrate the business in one estate. If the survivor's combined business property will be above £5 million, or if growth is expected, lifetime gifts to the next generation may still help.

Worked examples in pounds

These examples assume deaths after 6 April 2026, a 40% rate and no residence nil-rate band, to keep the numbers clear.

Example 1 — single owner of a company. Graham, who is unmarried, dies owning 100% of an unlisted engineering company valued at £4,000,000, plus £325,000 of other assets. He made no gifts. His £325,000 of other assets uses the nil-rate band. Business Relief gives 100% relief on £2,500,000 and 50% on the remaining £1,500,000, so £750,000 is taxable. The Inheritance Tax is £300,000, or 7.5% of the company's value. His executors can pay it in ten annual instalments of £30,000, interest-free.

Graham's £4m company — before and after the reform

	Death before 6 April 2026	Death after 6 April 2026
Relief at 100%	£4,000,000	£2,500,000
Relief at 50%	—	£750,000 (on £1,500,000)
Taxable value of company	£0	£750,000
Inheritance Tax at 40%	£0	£300,000
Interest-free instalments	—	10 × £30,000

Relief at 100%

Death before 6 April 2026

£4,000,000

Death after 6 April 2026

£2,500,000

Relief at 50%

Death before 6 April 2026

—

Death after 6 April 2026

£750,000 (on £1,500,000)

Taxable value of company

Death before 6 April 2026

£0

Death after 6 April 2026

£750,000

Inheritance Tax at 40%

Death before 6 April 2026

£0

Death after 6 April 2026

£300,000

Interest-free instalments

Death before 6 April 2026

—

Death after 6 April 2026

10 × £30,000

Example 2 — married couple. Fiona dies in 2026 and leaves her half of the family business, worth £2,000,000, to her husband Ian. That's spouse-exempt, so her allowance is unused. When Ian later dies with the whole business, now worth £4,500,000, his executors claim her unused allowance, giving him £5 million. The whole £4,500,000 gets 100% relief, and no Inheritance Tax is due on the business.

Example 3 — AIM portfolio. Sunita holds £400,000 of AIM shares she has owned for years, plus other assets that use up her nil-rate band. The shares get 50% relief, so £200,000 is taxable: £80,000 of tax, an effective 20%. Before April 2026 the shares would have been fully relieved. Because AIM shares don't use the allowance, any £2.5 million allowance she has remains available for other business property.

Example 4 — lifetime gift. In December 2024 Rob gave his son shares in the family company worth £1,500,000. He dies in 2027, still owning other qualifying business property worth £2,000,000. His son kept the shares and the company still trades. The gift uses £1,500,000 of Rob's allowance first, leaving £1,000,000 for the estate. The estate's £2,000,000 gets 100% relief on £1,000,000 and 50% on the other £1,000,000, so £500,000 is taxable before the nil-rate band.

Lifetime gifts and the 7-year rule

A gift of business property is a potentially exempt transfer: if you live 7 years, it falls out of your estate. If you die within 7 years, the gift becomes chargeable, and Business Relief is only available if the conditions are met at both ends. You must have owned the property for at least 2 years before the gift, and the recipient must keep it as a going concern, or as qualifying replacement property, until your death.

Since 30 October 2024, gifts of business or agricultural property also count against your allowance if you die within 7 years and on or after 6 April 2026. That's why the oldest gifts use the allowance first. Gifts made before 30 October 2024 follow the old rules.

Gifting shares can also trigger Capital Gains Tax, because a gift is treated as a sale at market value. Gift holdover relief can usually defer the gain on trading company shares, and our Business Asset Disposal Relief guide covers the rate if you sell instead. Plan the two taxes together: an Inheritance Tax saving is easily cancelled out by an unplanned Capital Gains Tax bill.

Trusts

A separate £2.5 million allowance applies to the combined value of relievable business and agricultural property in each trust. Trusts set up before 30 October 2024 are caught from their next 10-year anniversary on or after 6 April 2026, and each keeps its own allowance. For trusts set up since then, KPMG's summary of the rules notes that a settlor's trusts share one allowance, to stop people splitting property across many trusts. Exit charges are worked out on unrelieved values. Trust planning is technical, so take advice before creating or changing one.

How executors claim the relief

Business Relief isn't given automatically. The executors, or administrators if there's no will, claim it as part of the Inheritance Tax account. They value each business asset at market value at the date of death, and that valuation is where most disagreements with HMRC start. Shares in a private company are valued by reference to the company's profits, assets and the size of the holding; HMRC's Shares and Assets Valuation team may review the figure, so a professional valuation is worth having for any significant holding.

The account goes on form IHT400, with schedule IHT413 for business and partnership interests and assets, and any claim to transfer a late spouse's unused allowance. Inheritance Tax is due by the end of the sixth month after the death, so for a death in January the deadline is 31 July. Where the instalment option applies, only the first instalment is due then, and the rest follow annually. If the business or shares are sold before all the instalments are paid, the outstanding tax normally becomes payable at once.

Claiming Business Relief on an estate

1. 1

   Value the business assets

   Get market values at the date of death for the business, shares, premises and machinery, and identify any excepted assets such as surplus cash.

2. 2

   Sort assets into 100%, 50% and nil

   Unlisted trading shares and business interests may get 100%; AIM shares and personally owned premises used by the business get 50%.

3. 3

   Apply the allowance

   Use HMRC's apportionment method: exemptions first, then gifts since 30 October 2024, then a proportional split of what's left.

   HMRC apportionment guidance
4. 4

   File IHT400 and IHT413

   Include any claim for a spouse's unused allowance and choose whether to pay in instalments.

5. 5

   Pay by the deadline

   Pay the tax, or the first instalment, by the end of the sixth month after the death.

Common mistakes

Assuming the old unlimited relief. Wills and shareholder agreements written before 2026 often assume business property is fully relieved. Review them, especially the split between beneficiaries.

Forgetting the spouse transfer claim. The executors of the second spouse must claim the transferred allowance within the time limit.

Letting cash build up in the company. Excess cash or investments can be excepted assets, taxed in full.

Treating a property business as trading. Letting and holiday-let businesses are usually investment businesses that don't qualify.

Selling just before death. A binding contract for sale at the date of death switches relief off; cash from a completed sale doesn't qualify at all.

Ignoring AIM changes. Portfolios bought purely for 100% relief now carry an effective 20% charge.

What the Autumn Budget could change

The Autumn Budget is on 28 October 2026. The £2.5 million allowance and the 50% rate were legislated in Finance Act 2026, and no further change had been announced at the time of writing. Deloitte's Budget 2025 summary reports that the nil-rate bands are frozen until 5 April 2031. Watch for any indexation of the allowance, changes to the AIM rate, or further changes to trusts. We'll update this page after the Budget.

Official links

• Business Relief: what qualifies100%, 50% and the £2.5m allowance
• Apportion Agricultural and Business ReliefHMRC method and online tool
• APR and BPR changes policy paperTrusts, gifts, instalments
• Give away business propertyLifetime gifts
• Inheritance Tax thresholds and ratesNil-rate band and 40% rate

What to do next

List every business asset you own, including property your company uses and any AIM shares, with an up-to-date value. Check which get 100% relief, which get 50%, and whether your spouse's allowance is likely to be available. Then review your will and any shareholder agreement with a solicitor or tax adviser. The valuation calculator gives a rough starting point for what a company might be worth, and if you're thinking of selling instead of passing the business on, read our Business Asset Disposal Relief guide.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

What changed for Business Property Relief in April 2026?

For deaths on or after 6 April 2026, 100% relief applies only to the first £2.5 million of combined business and agricultural property. Qualifying value above that gets 50% relief, so it's taxed at an effective 20%. Shares on markets HMRC doesn't treat as listed, such as AIM, now get 50% relief. Unused allowance can pass to a surviving spouse or civil partner.

Is the business property relief allowance £1 million or £2.5 million?

It's £2.5 million. The 2024 Budget proposed £1 million, but on 23 December 2025 the government raised it to £2.5 million before the rules took effect. The figure applies per person to business and agricultural property combined, and a surviving spouse or civil partner can inherit unused allowance, giving up to £5 million.

Do AIM shares still qualify for business relief?

Yes, but only at 50% from 6 April 2026, not 100%. Shares traded on markets that don't meet HMRC's definition of listed, such as the Alternative Investment Market, get the lower rate whatever their value, and they don't use up the £2.5 million allowance. At a 40% Inheritance Tax rate that means an effective 20% charge.

How long do you need to own a business for business property relief?

At least 2 years before death or before the gift. The business or shares must also be a qualifying trading business, not one mainly dealing in or holding investments, land or shares. For lifetime gifts, the recipient must keep the property as qualifying business property until the donor dies, or relief can be lost if the donor dies within 7 years.

Can a married couple pass on £5 million of business assets tax-free?

In most cases, yes. Each spouse or civil partner has a £2.5 million allowance, and any unused part transfers to the survivor, so up to £5 million can get 100% relief. With both nil-rate bands, the government says a couple can pass on up to £5.65 million without Inheritance Tax. The transfer must be claimed.

Can I pay Inheritance Tax on a business in instalments?

Yes. From 6 April 2026, Inheritance Tax on any property that qualifies for business or agricultural relief can be paid in 10 equal annual instalments, interest-free, including all qualifying shares. That spreads, for example, a £300,000 bill into payments of £30,000 a year, so the family doesn't have to sell the business to pay the tax.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 11 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.Business Relief for Inheritance Tax: what qualifies — HMRC / GOV.UK · accessed 11 October 2026
2. 2.Agricultural property relief and business property relief changes — HM Treasury / HMRC · accessed 11 October 2026
3. 3.Work out how to apportion Agricultural and Business Relief for Inheritance Tax — HMRC / GOV.UK · accessed 11 October 2026
4. 4.Business Relief for Inheritance Tax: overview — HMRC / GOV.UK · accessed 11 October 2026
5. 5.Business Relief: give away business property or assets — HMRC / GOV.UK · accessed 11 October 2026
6. 6.How Inheritance Tax works: thresholds, rules and allowances — HMRC / GOV.UK · accessed 11 October 2026
7. 7.Paying Inheritance Tax — HMRC / GOV.UK · accessed 11 October 2026
8. 8.IHTM25341 — Assets excluded from relief: introduction — HMRC · accessed 11 October 2026
9. 9.Finance Act 2026 receives Royal Assent — Ross Martin Tax Consultancy · accessed 11 October 2026
10. 10.Inheritance tax changes: APR and BPR allowances increased — KPMG · accessed 11 October 2026
11. 11.Autumn Budget 2025: inheritance tax measures — Deloitte · accessed 11 October 2026