From 6 April 2026, Business Property Relief is no longer unlimited at 100%. A cap now applies, and for directors with significant business assets, it changes the planning picture. But for the majority of company directors TLPI works with, the more pressing risk has nothing to do with the cap — and has been there all along.
What changed in April 2026
Business Property Relief is now capped at £2.5 million at 100% relief. The position above that threshold is as follows:
- The first £2.5 million of qualifying business assets continues to receive 100% BPR — no Inheritance Tax charge
- Assets above £2.5 million receive 50% BPR — creating an effective 20% Inheritance Tax rate on the excess
This applies to shares in qualifying trading companies and other qualifying business assets. For directors whose total qualifying business assets exceed £2.5 million, the cap creates a meaningful new exposure on the portion above the threshold.
The cap applies per estate. It is not doubled for married couples automatically, though each spouse can hold qualifying assets separately, potentially allowing up to £5 million at 100% relief where both spouses hold shares in the trading company.
The risk that predates April 2026
Most directors, when they hear about the April 2026 cap, focus on the threshold figure. For the company directors TLPI works with, however, the more immediate risk has nothing to do with the cap.
Under HMRC’s excepted assets rules, surplus cash sitting in the trading company can be excluded from Business Property Relief entirely — right now, on the current balance sheet. HMRC reviews the company’s assets at the point of transfer and strips out any cash it considers surplus to day-to-day trading requirements. That cash then faces the full 40% Inheritance Tax charge, regardless of whether the company would otherwise qualify for BPR.
This is a binary risk, not a graduated one. It does not require assets to exceed £2.5 million. It can affect any trading company holding retained profits above what HMRC considers necessary for active trading. And it has always been part of the BPR rules.
A trading company with £800,000 in retained cash, of which HMRC considers £400,000 surplus to trading requirements, faces a £160,000 Inheritance Tax liability on that surplus — with no relationship to the April 2026 cap at all.
Which risk matters more for your business?
The answer depends on the specific position:
If qualifying business assets are below £2.5 million, the April 2026 cap does not affect the position directly. But the excepted assets rule may still be putting a significant portion of the balance sheet at risk. The cap is irrelevant; the excepted assets exposure is not.
If qualifying business assets exceed £2.5 million, both risks apply. Surplus cash is first stripped out as an excepted asset. The cap then applies to the remaining qualifying assets above £2.5 million. The two risks compound each other, and addressing them in the wrong order makes the problem worse.
Addressing the excepted assets problem is the correct first priority in both cases. The cap is a secondary consideration once the trading company balance sheet is structurally clean.
How to address both risks
A Family Investment Company (FIC) moves surplus cash out of the trading company into a separate legal structure that the director continues to control. The cash is no longer an excepted asset within the trading company. The trading company is left holding only the assets it genuinely needs to trade — which is precisely what HMRC’s rules require for full BPR qualification.
For directors with business assets above £2.5 million, a FIC also helps manage exposure to the cap by separating investment assets from trading assets before the point of transfer.
TLPI establishes and administers FICs for company directors at the point where retained profits are creating BPR exposure. If you would like to understand how both the excepted assets risk and the April 2026 cap apply to your specific position, book a free 15-minute call.
