Inheritance Tax Changes 2026: What Family Businesses Need to Know
We are now in the 2026/27 tax year, which means some of the inheritance tax changes announced in October 2024 have now come into effect. For many family businesses, the most important development is the change to the Business Property Relief rules.
For some business owners, this will have little or no practical impact. For others, especially those with larger and more valuable family businesses, it could create a significant inheritance tax exposure and make forward planning much more important.
The previous position for family businesses
Under the old Business Property Relief rules, where a qualifying trading business was passed on to the next generation on death, there would generally be no inheritance tax to pay on that transfer. In practice, this meant that many family businesses could be passed down without an inheritance tax charge arising.
That was a very favourable position and, for many business-owning families, it formed an important part of long-term succession planning.
What changed from 6 April 2026?
From 6 April 2026, new limits were introduced.
The key change is that where an individual personally owns a business worth £2.5 million or more, passing that business on could now lead to an inheritance tax charge. The excess over £2.5 million is potentially subject to inheritance tax at 20% on death.
This represents a major shift from the previous position, where qualifying business assets were, in many cases, effectively free from inheritance tax when passed on.
What if the business passes to a spouse first?
For married couples, there is an important point to consider.
If, on the first death, the shares in the business are left to the surviving spouse, and only pass to the wider family on the spouse’s later death, the available limit is effectively doubled. In those circumstances, shares in a qualifying trading business of up to £5 million could potentially pass without an inheritance tax charge under these rules.
However, anything above the £5 million level could again be subject to inheritance tax at 20%.
A common misconception about gifting
One of the common misunderstandings around inheritance tax is the belief that gifting assets automatically creates an inheritance tax charge.
Generally speaking, if you give assets away individuals during your lifetime, whether they are business assets or not, there is no immediate inheritance tax at the point of the gift. Instead, inheritance tax may only become relevant if the person making the gift dies within seven years, depending on the circumstances.
That said, while there may be no immediate inheritance tax, there could still be capital gains tax implications, so gifting is not something to approach without proper thought.
Will most family businesses be affected?
It is important to keep the change in perspective.
Many family businesses are likely to be worth less than £2.5 million. Where that is the case, these changes may not have a meaningful impact, particularly for married couples where the effective limit can be as high as £5 million.
So although the rule change is significant, it will not necessarily create a problem for every family business.
Why larger family businesses should think ahead
Where a family business is more valuable, the position is very different. If the value exceeds the new thresholds, there may now be an inheritance tax cost that did not previously exist.
For larger family businesses, this makes planning much more important. Business owners should start thinking now about what these inheritance tax changes could mean for the future and how their business might ultimately be passed on.
Final thoughts
The inheritance tax changes now in force from 6 April 2026 mark a major change for family businesses, particularly in relation to Business Property Relief.
In simple terms:
- qualifying trading businesses were previously much more likely to pass free of inheritance tax on death
- there is now a £2.5 million limit for individuals
- for married couples, that effective limit may rise to £5 million where assets pass to a spouse on death
- anything above those limits may face inheritance tax at 20%
- lifetime gifts to individuals do not usually create an immediate inheritance tax charge, although other taxes may still need to be considered
For many smaller family businesses, the impact may be limited. But for larger businesses, this is a change that should not be ignored.
If your family business could be affected, now is the time to start considering what these new rules might mean for your long-term plans.
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