Preparing for the 2027 Inheritance Tax landscape: Changes to Business Property Relief and Agricultural Property Relief

What is changing?

Historically, qualifying business and agricultural assets could pass on death with up to 100% relief from inheritance tax, often enabling family businesses and farms to be transferred between generations without an immediate tax burden. 

The Governments idea behind such a relief was to make sure businesses and farms continued to trade without the complication of a tax bill on death of a key person thereby averting closure and consequential laying off of staff.

Under the new rules, a combined allowance of £2.5 million per individual will continue to benefit from 100% relief. However, qualifying value above that threshold will generally attract relief at 50%, resulting in an effective inheritance tax charge of 20% on the excess.

In addition, shares quoted on the Alternative Investment Market (AIM), which previously qualified for full Business Property Relief after two years of ownership, will receive relief at only 50%, irrespective of value.

Why does this matter?

For many family businesses and farming enterprises, wealth is tied up in assets rather than cash. A significant inheritance tax liability may therefore create pressure to borrow, restructure or dispose of assets in order to fund the tax bill.

The reforms are intended by Government to target the largest estates whilst retaining generous reliefs for smaller businesses and farms. Nevertheless, the changes will require many families to revisit succession planning assumptions that have remained unchanged for decades.

Planning opportunities

Although each family’s circumstances are unique, there are several issues that merit consideration:

1. Reviewing business structures
   Businesses with mixed trading and investment activities should review whether their current structures remain appropriate. Separating non-trading assets from core trading operations may improve both commercial clarity and tax efficiency.
2. Lifetime gifting strategies
   For some owners, making gifts during their lifetime may form part of a wider succession plan. The interaction between potentially exempt transfers, trusts and the new relief limits requires careful advice to avoid unintended consequences.
3. Funding future liabilities
   Life assurance written in trust may provide liquidity to meet future inheritance tax liabilities without forcing the sale of family assets at an inopportune time.
4. Aligning Wills and succession plans
   Wills drafted on the assumption of unlimited BPR or APR may no longer achieve the intended outcome. Business succession arrangements, partnership agreements and shareholder documentation should be reviewed alongside testamentary provisions.

A wider shift in Inheritance Tax planning

The reforms illustrate a broader trend towards narrowing reliefs that have historically facilitated intergenerational wealth transfers. Estate planning can no longer rely solely on established assumptions regarding business and agricultural assets.

Early engagement with advisers will be critical. Families who review their affairs now will have greater flexibility and more options than those who wait until the new regime is in force.

How we can help

The Thackray Williams Private Client team works closely with business owners, farming families and professional advisers to develop practical succession plans that balance tax efficiency with commercial realities. If you would like to discuss how these changes may affect your family or business, please contact a member of the team on 020 8290 0440.

This article provides general information only and should not be treated as legal or tax advice. Specific advice should always be obtained based on individual circumstances.