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.
Frequently asked questions
What is the Business Property Relief cap introduced in April 2026?
From 6 April 2026, Business Property Relief on qualifying business assets is capped at £2.5 million at 100% relief. Assets above that threshold receive 50% relief, creating an effective 20% Inheritance Tax rate on the excess. Previously, Business Property Relief was available at 100% on all qualifying business assets with no upper limit.
Does the £2.5 million Business Property Relief cap apply per person or per couple?
The cap applies per estate. Married couples and civil partners can each hold qualifying assets separately, however, which means a couple where both spouses hold shares in the qualifying trading company could effectively benefit from up to £5 million at 100% relief, provided the relevant conditions are met.
What are HMRC's excepted assets rules, and how do they affect Business Property Relief?
HMRC can exclude assets from Business Property Relief that are not required for the purposes of the business. Surplus cash held in the trading company above what is genuinely needed for day-to-day trading operations is typically treated as an excepted asset and stripped out of the relief calculation. That cash then faces the full 40% Inheritance Tax charge, regardless of whether total business assets are below the £2.5 million cap. The excepted assets rule predates the April 2026 cap and applies independently of it.
Does the April 2026 cap affect my company if qualifying assets are below £2.5 million?
Not directly. If qualifying business assets are below £2.5 million, the new cap does not change the position on those assets. However, the excepted assets rules still apply. Surplus cash on the company balance sheet can be excluded from Business Property Relief at any asset level. For most directors whose companies are below the cap, the excepted assets position is the more pressing risk to address.
How does a Family Investment Company help protect Business Property Relief?
A Family Investment Company moves surplus cash out of the trading company into a separate legal structure that the director continues to control. The trading company is left holding only the assets it genuinely requires for active trading — the standard HMRC requires for full Business Property Relief qualification. The cash is no longer exposed as an excepted asset within the trading company. For directors with assets above £2.5 million, a FIC can also help separate investment assets from trading assets before the point of transfer, managing exposure to the cap.
How does the April 2027 pension Inheritance Tax change relate to Business Property Relief?
From April 2027, unused pension funds — including SSAS pensions — will form part of the estate for Inheritance Tax purposes. Business Property Relief does not apply to pension assets, so the full 40% Inheritance Tax rate will apply to undrawn pension funds. This is a separate change to the April 2026 Business Property Relief cap, but the two interact for directors who hold both a trading company and a SSAS pension. See our guide to the April 2027 pension Inheritance Tax changes for detail on the interaction.
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