If most of what you own is your business, Inheritance Tax may not have been high on your list. For years, shares in an owner-run trading company could usually pass on death without it. Since 6 April 2026 there's been a cap on that, and it changes the sums when you're deciding whether to sell the business or keep it.
This guide explains how Business Relief works now, and how it fits with a decision to sell. GOV.UK calls it Business Relief and HMRC's policy papers call it business property relief. They're the same relief.
How Business Relief works
Inheritance Tax is charged at 40% on the part of an estate above the £325,000 threshold, after exemptions such as anything left to a husband, wife or civil partner. Business Relief reduces the value of business property before the tax is worked out, by 100% or by 50%. It applies to business property left on death and to gifts of it made during your life. Your executors claim it when they value the estate, on form IHT400 with schedule IHT413.
The £2,500,000 allowance from 6 April 2026
For deaths on or after 6 April 2026, the 100% rate has a limit. It applies to the first £2,500,000 of business and agricultural property that would otherwise get 100% relief, taken together. Anything above that gets 50%, so in effect it's taxed at 20%, half the usual rate.
| Made-up value of qualifying shares | Value left after relief | Inheritance Tax at 40% |
|---|---|---|
| £2,000,000 | £0 | £0 |
| £3,000,000 | £250,000 | £100,000 |
| £5,000,000 | £1,250,000 | £500,000 |
These assume the rest of the estate uses the £325,000 threshold. Gifts of business property made in the seven years before death that become taxable use up the same allowance first.
The £2,500,000 is fixed until 6 April 2031. From then the Finance Act 2026 links it to the consumer prices index, so it can rise each April in line with the index for the year to the previous September, rounded up to the nearest £1,000. Trusts have their own £2,500,000 allowance, with separate rules.
Passing unused allowance to your husband, wife or civil partner
Any part of the allowance that isn't used on a death can pass to the surviving husband, wife or civil partner, so a couple can have up to £5,000,000 between them. If you leave your shares to your spouse, there's usually no Inheritance Tax on your death and none of your allowance is used, so all of it can pass across.
If the first death was before 6 April 2026, a full £2,500,000 is treated as available to transfer, even if that estate claimed Business Relief. The executors of the second estate must claim the transfer within four years from the end of the month of the death, or within six months of first acting if that's later, and HMRC can allow longer.
What qualifies
These get 100% relief, within the allowance.
- A business, or an interest in one, such as a sole trade or a share in a partnership.
- Shares in an unlisted company, which includes private limited companies.
These get 50% relief.
- Qualifying property above the £2,500,000 allowance.
- Shares traded on markets that HMRC doesn't treat as listed, such as the Alternative Investment Market.
- Shares that give control of more than 50% of the votes in a listed company.
- Land, buildings or machinery you own personally and that's used by a company you control or a partnership you're in.
The last three get 50% whatever their value, and they don't use the allowance.
What doesn't qualify
The relief is lost or cut back in a few common situations.
- Investment businesses. A business that mainly deals in shares, land or buildings, or makes or holds investments, gets no relief. A company that mostly lets property usually falls into this.
- A binding contract for sale. If there's a binding contract to sell the business or shares when you die, there's no relief, unless the sale is to a company and paid mainly in its shares. HMRC treats an agreement that obliges your executors to sell and the other owners to buy as such a contract. An arrangement that gives the other owners an option to buy isn't.
- A company being wound up, unless it's part of a reconstruction that lets the business carry on.
- Assets the business doesn't need. Assets that weren't used mainly in the business over the last two years and aren't needed for its future are taken out of the value that gets relief. Cash well beyond what the business needs, or an investment property held by a trading company, can fall into this.
If part of a building is used for the business and the rest isn't, the part used for the business can still qualify.
The two-year ownership rule
You must have owned the business or shares for at least two years before your death or the gift. If you sold one qualifying property and bought another, the two can count together as long as you owned them for at least two of the last five years. If you inherited the property from your husband, wife or civil partner, the time they owned it counts as yours. The clock matters if you've bought into a business recently, so check where you stand before relying on the relief.
Gifts during your life
A gift to another person is usually only taxed if you die within seven years of making it. If you give away business property and die within that time, the relief applies only if the person you gave it to still owns it, or property that replaced it, and it would still qualify at your death. You must also have owned it for two years before the gift.
A gift of shares can bring a Capital Gains Tax bill as well, based on their market value. Gift Hold-Over Relief can often pass that gain on to the person receiving them, so they pay it when they sell.
Paying over 10 years without interest
Inheritance Tax on property that qualifies for Business Relief, or for Agricultural Relief, can be paid in 10 equal yearly instalments. For property inherited from 6 April 2026, the instalments are interest-free, as long as each is paid on time. The first is due at the end of the sixth month after the death, and the rest on the same date each year. If the business or shares are sold, whatever is still owed must be paid in full. That gives a family time to pay the tax out of the business's profits, without selling it to pay the bill.
How this changes the sell-or-keep decision
A sale turns business property into cash, and cash doesn't get Business Relief. If you sell and still hold the money when you die, it's taxed at 40% above your threshold. If you keep the shares, the first £2,500,000 is relieved in full and the rest is taxed at an effective 20%.
There's a Capital Gains Tax difference too. When you die, the people who inherit your shares are treated as acquiring them at their market value on that date, and no Capital Gains Tax is charged on the gain built up in your lifetime. If you sell first, you pay Capital Gains Tax on that gain, and Inheritance Tax later on what's left. Our guide to tax when you sell a business covers the sale side.
This made-up example shows the size of the difference. David is single, and his shares in a trading company are worth £3,000,000, all of it gain. His home and savings use up his £325,000 threshold, his income uses his basic rate band, and he's never claimed Business Asset Disposal Relief.
| Made-up example | Keeps the shares until death | Sells, and still holds the cash at death |
|---|---|---|
| Capital Gains Tax on the sale | None | £659,280 |
| Value in his estate | £3,000,000 of shares | £2,340,720 of cash |
| Inheritance Tax | £100,000 | £936,288 |
| Total tax | £100,000 | £1,595,568 |
| Left for his family | £2,900,000 | £1,404,432 |
These figures assume he sells before 6 April 2027. From that date the Business Asset Disposal Relief lifetime limit falls from £1,000,000 to £500,000, which would add £30,000 to his Capital Gains Tax and leave his family £18,000 less after Inheritance Tax. HMRC says special provisions will apply to contracts entered into before 6 April 2027 that haven't been completed by then.
If David were married and his wife's allowance passed to him, keeping the shares would mean no Inheritance Tax on them at all.
Tax is one side of the decision. These points sit on the other.
- Keeping only works if someone can run the business, or own it while a manager does, and the shares hold their value.
- The relief depends on the company still trading. One that stops trading and just holds cash or property can lose it.
- A sale gives you money to live on, and cash you give away and then survive by seven years is outside your estate.
- You can sell part and keep part. Our guide to selling part of your business covers how that works.
Who takes over is a separate question from who owns it. Our guide to succession planning deals with both, and our guide to your exit strategy sets out the routes.
These figures were checked after the Budget on 28 October 2026. It didn't change Business Relief, the £2,500,000 allowance, the £325,000 threshold or the 40% rate. It did cut the Business Asset Disposal Relief lifetime limit to £500,000 for disposals from 6 April 2027, which changes the tax on a sale. Check with your accountant before you decide whether to sell or keep the business.