Rachel Reeves announced significant changes in the Budget last autumn to Business Property Relief, which has been a key relief for owners of unquoted businesses – including many brokers. Head of Private Client, Stephen Kenny, outlines the changes and how broker owners should consider responding.
What are the current BPR rules?
Business Property Relief (BPR) provides relief from Inheritance Tax (IHT) on the transfer of relevant business assets at the rate of 50% or 100%:
| Assets | Rate |
| A Business or an interest in a business | 100% |
| Unquoted shares | 100% |
| Unquoted securities which, on their own or combined with other unquoted shares or securities, give control of an unquoted company | 100% |
| Quoted shares which give control of the company | 50% |
| Land or buildings, machinery or plant used wholly or mainly for the purposes of the business carried on by a company or partnership | 50% |
| Land or buildings, machinery or plant available under a life interest and used in a business carried on by the beneficiary | 50% |
Note: The assets usually have to be held for two years to qualify for relief.
With this in mind, an interest in an unquoted business would typically qualify for relief at 100%, so that no IHT is paid. Moreover, if the shares are transferred on death, the shares would be rebased to the value at death for Capital Gains Tax (CGT).
Given that broking businesses tend to be structured as unquoted trading companies, this means that their shares could be passed on effectively tax free. However, following the Budget, this will no longer be the case from April 2026.
What are the changes to the BPR rules?
From April 2026, relief on assets that qualify for 100% relief for both Business Property Relief and Agricultural Property Relief will be subject to a combined limit of £1 million.
If the total value of the relevant property is above £1 million, the allowance will be applied proportionally across all the qualifying property. Once you have exceed the £1million allowance, a reduced rate of 50% will apply. This will give an effective IHT rate of 20% on business property over £1 million.
It is worth nothing that any unused £1 million allowance will not be transferable between spouses.
This new limit will apply after April 2026 to:
- Gifts made on or after 30 October 2024 and in the seven years before death if the death occurs on or after 6 April 2026
- Property in the person’s estate on death if the death is after April 2026
There are also provisions that will apply to trusts, some details of which are still subject to consultation.
We would expect many brokers to be caught by these changes, as most would currently qualify for BPR at 100% and will be subject to the new cap from next year.
What are the next steps if you are caught by the BRP rule changes?
There are a number of steps that you can take to minimise the impact of the new BPR rules:
Make sure you are using all the new relief
The new £1 million allowance is not transferable between spouses, which means married couples need to make sure they are able to fully use both of the allowances.
Transfers of shares between spouses can be done free from CGT. This provides an opportunity to rebalance the ownership of assets to make sure that the holdings allow each spouse to use their full allowance on their respective deaths.
Gift the assets and survive seven years
Giving assets as a gift ahead of death is a well-known tax planning tool; but it has a drawback – it would mean that the rebasing for CGT on death would be lost (and, following the Budget, CGT is potentially higher than IHT: 24% CGT compared to 20% IHT). However, this option may still be preferable for those broking businesses that are not expected to be sold, and so the owners are unlikely to need to worry about CGT.
Even if a sale is anticipated at some point in the future, it may be better to defer a tax charge until there is a sale (and therefore cash is available to pay the tax) rather than paying IHT at 20% on the total value on death (when there is not necessarily the cash available to make the payment to HMRC).
Insurance
Insurance can be an effective way to manage any possible exposure on lifetime gifts and also a potential liability when younger.
When making lifetime gifts/planning, insurance can be an effective way to mitigate any short term potential liability. It can also be a cost effective way for younger taxpayer to protect against any unexpected IHT exposure.
Spreading the value
Gifts can also be made to reflect the fact that small transfers of assets can potentially lead to significant reductions in the value of the remaining estate.
To understand how this might work in practice, consider this example: if someone owns 51% of a company, they could consider transferring a small holding of, say, 2%. On its own, this 2% holding has a relatively modest value as it would be a minority interest in the company with very little control.
However, for IHT purposes, the reduction in the value of the donor’s estate would be much more significant. The value of a 51% controlling interest in a company is far higher than a 49% minority holding.
This means that by making small gifts of minority holdings, it can be possible to achieve a far larger reduction in the value of the assets in the estate.
What does it all mean?
The changes are likely to have a significant impact on broking businesses, and mean that owners are going to have to take a longer term view of their tax planning. Use this opportunity to ensure that you can effectively plan for potential charges and take the appropriate steps far enough in advance to mitigate the potential liability.
This article was originally published in Insurance Age. For more information, please contact Stephen Kenny.
