IHT, BPR, and the UK 2025 Budget | TLPI | Act now, not later

With the right strategies and planning, Inheritance Tax can be greatly mitigated. But those who do nothing will end up paying, with HMRC more than happy to collect.

For many years, savvy business owners have relied on Business Property Relief (BPR) to keep family businesses intact and pass them down without a crippling tax bill. However, from April 2026, the rules are changing and the stakes will become higher than ever for families, businesses, and legacies.

What is changing?

Currently, many trading businesses qualify for 100% relief from IHT under BPR. That means a family trading business can usually be passed on to heirs without having to sell it to pay Inheritance Tax. This means no last-minute scramble to sell assets or find funds to pay the huge bill.

But from April 2026:

• Only qualifying business/agricultural property (combined value of assets eligible) will continue to receive 100?% relief.
• Anything above that gets just 50% relief, an effective IHT burden on the excess.

For many families, this will mean a sudden, unavoidable tax bill, possibly in the millions. And the worst part? Without preparation, your beneficiaries – usually your spouse and children – may have no choice but to sell assets, take on debt, or lose control of the business just to pay HMRC. This is your lifetime’s hard work, and it could be stripped away, not because of mismanagement, but simply because the rules changed and no plan was in place to protect it.

A real world example:

Jessica has spent decades building a family business offering sports therapy, now worth £5 million. Under today’s rules, her children could inherit the business completely free from Inheritance Tax, keeping her lifetime of hard work intact.

But from April 2026, the rules change dramatically:

• Only the first £1 million of the business will qualify for full Business Property Relief (BPR).
• The remaining £4 million will qualify for only 50% relief, meaning £2 million becomes taxable. At 40% IHT, that’s £800,000 her family would suddenly owe HMRC.

Without careful planning, Jessica’s children could be forced to sell parts of the business, take on debt, or lose control. Her son, who has been training and starting to take the reins, might then never have the opportunity to lead the company, and the legacy and recognition of Jessica building such a successful business could be seriously diminished.

Now, imagine if Jessica had taken steps to protect her wealth:

• By using a Family Investment Company (FIC), – think of it as her family’s own wealth engine – Jessica could structure the business so her children benefit from its growth over time, whilst she still retains control. This strategy will keep trading and investment assets clearly separated and protect her legacy.
• By adding a SSAS – her family’s Business and Pension Growth Hub — Jessica could hold commercial property or other assets that generate income for the business, lend funds back if needed. This would also give her a facility for further business growth and reducing Corporation Tax for her trading company.

The difference? Instead of an unexpected £800,000 tax bill for her family, Jessica and her family could retain control, protect her legacy, and keep the business thriving – all by acting before the new rules take effect.

Wealth-protecting structures: FICs and SSAS

Family Investment Company (FIC)

• Separates trading assets (still qualifying for BPR) from investment assets (which do not qualify).
• Allows growth of investment assets to accumulate outside your estate, helping to reduce potential IHT exposure.

Small Self-Administered Pension Scheme (SSAS)

• Hold commercial property in the pension, rented back to the business – rent is received tax-free within the SSAS.
• Lend funds back to the company (up to 50?% of SSAS assets, at a commercial rate), providing cashflow flexibility.

Together, these structures create layers of protection, reducing IHT risk whilst keeping family wealth and business control intact.

Act now, not later

The government has already set this clock ticking. Simply transferring assets now is not enough – transfers and gifts made from October 2024 are already within scope for the new BPR rules if the owner dies within 7 years. Waiting until 2026 could leave your family facing a significant IHT liability with limited options.

By reviewing your estate and structuring your wealth today, you can:

• Reduce potential IHT exposure on your estate.
• Protect your family business for the next generation.
• Gain peace of mind knowing you have acted while the rules are still in your favour.
• Avoid ‘gifting’ 40% of your estate to HMRC.
• Sleep better knowing you have acted whilst the rules are still in your favour.

Inheritance Tax is only “voluntary” if you take action to plan for it.