The inheritance tax (IHT) agricultural relief U-turns that came out before Christmas have been well publicised, but the changes apply equally to business relief.
Currently, qualifying business property included in a deceased’s estate qualifies for 100% relief regardless of the value of the business property.
October 2024 Budget: The initial proposals would have restricted 100% business relief to a maximum of £1 million from 6 April 2026. For qualifying business property in excess of £1 million, relief would have been at the rate of 50%. On a business valued at £5 million, IHT would have potentially increased from zero to £800,000.
November 2025 Budget: The first U-turn saw the £1 million allowance made transferable to a surviving spouse or civil partner. Therefore, the amount of IHT on a business valued at £5 million could potentially be cut to £600,000
December 2025 U-turn: In an announcement made just before Christmas, the government said that the 100% allowance will now be £2.5 million. The £5 million business property will therefore again be fully exempt if a surviving spouse or civil partner’s allowance is available.
Unlike married couples and civil partners, the £2.5 million 100% allowance is not transferable to a surviving partner where the couple are unmarried or not in a civil partnership. Although a long-term unmarried couple may be perfectly content as they are, the IHT downside of remaining so could well warrant a rethink.
