Succession and family
The £2.5m Business Relief allowance: what it means for owners of trading groups
From April 2026 Business Relief is 100% on the first £2.5m and 50% above. Worked examples for owners of trading groups, plus excepted assets and planning.
By Omar Aswat CTA ·
Until 5 April 2026, shares in an unquoted trading company or the holding company of a trading group usually qualified for 100% Business Relief for inheritance tax, with no upper limit. A business worth £20m could pass to the next generation free of inheritance tax.
That changed on 6 April 2026. Business Relief (and agricultural property relief) is now:
- 100% on the first £2.5m of combined qualifying business and agricultural property per person; and
- 50% on the value above £2.5m.
The allowance was originally announced as £1m and raised to £2.5m on 23 December 2025. It's legislated in the Finance Act 2026 (s65 and Sch 12). Older guidance still shows £1m; that figure is out of date.
The new rules in brief
| Feature | The rule from 6 April 2026 |
|---|---|
| Allowance | £2.5m per person, at 100% relief |
| Above the allowance | 50% relief, so an effective 20% inheritance tax rate |
| What it covers | Combined value of agricultural and business property |
| Spouses and civil partners | Unused allowance transferable to the survivor |
| Trusts | A £2.5m allowance for relievable property in trusts |
| Lifetime gifts | New rules apply to gifts on or after 30 October 2024 where the donor dies on or after 6 April 2026 within 7 years |
| Paying the tax | 10 annual interest-free instalments for all APR/BPR property |
| Indexation | In line with CPI from 6 April 2031 |
Holding company shares still qualify in the same way
None of the qualifying rules changed. Shares in a holding company qualify where its business is wholly or mainly being the holding company of companies that trade (IHTA s105(4)(b)). You must have owned them for two years (s106), and if they came from a share-for-share exchange, the period you owned the original trading company shares counts (s107(4)).
What changed is how much relief you get once you qualify.
Worked examples
These are illustrations, not client examples. In each, the shares are in a holding company (HoldCo) of a trading group, all conditions are met, and the nil-rate band is assumed to be used by other assets.
Example 1: a single owner with shares worth £8m
| Step | Amount |
|---|---|
| Value of HoldCo shares | £8,000,000 |
| First £2,500,000 at 100% relief | £0 taxable |
| Remaining £5,500,000 at 50% relief | £2,750,000 taxable |
| Inheritance tax at 40% | £1,100,000 |
Before April 2026, the same shares would have attracted no inheritance tax.
Example 2: a married couple with the same £8m
If the shares are held equally (£4m each) and each leaves their shares to the children:
| Each spouse | Both | |
|---|---|---|
| Value | £4,000,000 | £8,000,000 |
| At 100% | £2,500,000 | £5,000,000 |
| Above the allowance, 50% taxable | £750,000 | £1,500,000 |
| Inheritance tax at 40% | £300,000 | £600,000 |
If instead the first spouse leaves everything to the survivor, that transfer is normally exempt, and the unused allowance passes across. The survivor then has £5m of allowance against the £8m. The total tax is the same £600,000, but it's paid on the second death.
Either way, the couple saves £500,000 compared with Example 1. Making sure both allowances are available, through ownership or wills, is now one of the simplest pieces of planning.
Example 3: the cost of surplus cash
Return to the single owner, but suppose £1m of HoldCo's £8m value is surplus cash that hasn't been used in the business for two years and isn't required for future use. That cash is an excepted asset (IHTA s112): it gets no relief.
| Step | Amount |
|---|---|
| Excepted cash, no relief | £1,000,000 taxable |
| Qualifying value | £7,000,000 |
| First £2,500,000 at 100% | £0 |
| Remaining £4,500,000 at 50% | £2,250,000 taxable |
| Total taxable | £3,250,000 |
| Inheritance tax at 40% | £1,300,000 |
That's £200,000 more than Example 1, for the same total value. Excepted assets are now taxed at 40% while qualifying value above the allowance is taxed at an effective 20%, so surplus cash is doubly expensive. See how much cash is too much.
What this means for owners of trading groups
Check the value. Many owners have never had their shares valued because 100% relief made it irrelevant. Above £2.5m per person, value now drives the tax.
Use both spouses' allowances. Wills that leave shares in a way that wastes an allowance, or ownership that leaves one spouse with far more than £2.5m and the other with nothing, deserve a review. Transfers between spouses can be part of the answer.
Keep trading status clean. The trading test for Business Relief is "wholly or mainly", so a group with some surplus cash usually still qualifies, but excepted assets lose relief entirely. Earmarking cash for genuine business use, or moving it out of the group, matters more now.
Mind property and investment companies in the group. Where a group company's business is investment, HoldCo's shares are normally valued as if that company weren't in the group (IHTA s111). Premises occupied by the group's trading companies are an exception. See a property company in a group.
Think about lifetime gifts. A gift of HoldCo shares that you survive by seven years falls outside inheritance tax. Capital gains tax on a gift of shares in a trading group can usually be held over. For gifts on or after 30 October 2024, if you die within seven years after 5 April 2026, the new rules and your £2.5m allowance apply to the gift.
Watch sale contracts and buy-sell agreements. Shares under a binding contract for sale at the time of the transfer don't qualify (IHTA s113). Shareholders' agreements that oblige the survivors to buy a deceased shareholder's shares should be checked with this in mind.
Consider a structure above the group. Some families now look at a family investment company or trust above HoldCo, so that future growth sits with the next generation. These need careful design, and Business Relief, gift and trust rules all interact. See a family investment company above a group.
Plan for the tax, not just around it. With ten-year interest-free instalments now available for all business property, and exempt dividends able to move cash up to HoldCo, some families will simply plan to pay a 20% charge over time. That's a legitimate choice, but it needs liquidity in the right place.
The bigger picture
For a trading group worth up to £2.5m per person, or £5m for a couple, little has changed in practice. Above that, inheritance tax on business shares is back on the agenda, at an effective 20%. A holding company doesn't change the relief rules, but it gives you more ways to manage value, cash and ownership.
For more, see inheritance tax and holding companies. If you'd like to talk through your own position, book a call. We respond the same working day.
This article is general information, not advice. Tax rules change and their effect depends on your circumstances. Please speak to us before acting.
