New IHT relief changes: £2.5m cap for Business & Agricultural Property Relief (APR) explained

Business owners and farmers had previously welcomed the Government’s confirmation in the Autumn 2025 Budget that a spouse or civil partner will be able to transfer their unused APR/BR allowance to their surviving spouse when they die, allowing a married couple or civil partners to pass on up to a combined £5 million of qualifying assets free of IHT.

Where the value of qualifying assets exceeds the available threshold for claiming 100% relief, tax will be payable at half the usual IHT rates, at 20% rather than 40%.

For some, this is a welcome policy change to IHT reforms, which had been widely criticised for potentially drawing a vast number of modestly-sized businesses into the IHT net. By allowing lower value businesses to be passed on tax-free, it is hoped that fewer will face the difficult reality of having to sell a business to cover an IHT bill. For others, more reform is needed, particularly for businesses where asset values are high but profit margins are low and where it could damage a business to raise what could be a considerable amount to cover an unexpected tax bill.

It is worth noting that these increased BR/APR allowances are claimable in addition to the basic IHT allowances, which are often available to estates. These include the Nil Rate Band (‘NRB’) worth £325,000 and – for individuals leaving an estate that includes their family home to their direct descendants – the Residence Nil Rate Band (‘RNRB’) worth £175,000. These allowances, combined to total £500,000, can also be transferred to a surviving spouse on death. The result is that a spouse or civil partner could potentially benefit from £1 million of basic IHT relief and £5 million of BPR/APR. However, for estates valued at over £2 million (including the value of Business or Farming assets) the benefit of the RNRB starts to taper off and at £2.7 million the RNRB is lost altogether, leaving only the NRB and BR/APR tax reliefs available.

In this fluctuating fiscal landscape, it is more important than ever for business owners to take advice on their estates and to ensure that their Wills are reviewed to ensure that they take full advantage of these reliefs. Our Private Client team are well versed in advising on IHT efficient Will structures that maximise the benefit of BR and the value of your estate that you can pass on tax free. Contact us on 0208 290 0440 if you would like to discuss this with a member of our team.

Elliot Lewis, Head of Private Client, and Will King, in our Corporate team will be presenting a Webinar on Inheritance Tax and succession planning advice for businesses on Wednesday 4 March from 1:00pm to 2:00pm. Reserve your place here.