How wills can help capture Inheritance Tax (IHT) Reliefs

Victoria Cross, an experienced wills, trusts and probate solicitor at Napthens, looks at how the changes made to Inheritance Tax in the October 2024 Budget, and the recent tweaks in the November 2025 Budget, will impact people and businesses.

One of the most significant changes is to the way Inheritance Tax is to be paid on farming assets and business interests.

While there has been much widespread media attention on the changes to Agricultural Property Relief, the changes to Business Relief (formerly Business Property Relief) were largely unreported.

How does Business Relief work?

Business Relief is typically available on:

•  Shares in an unquoted company
•  Shares in a qualifying company listed on the Alternative Investment Market (AIM)
•  An unincorporated qualifying trading business, or an interest in one, such as a partnership

The qualifying criteria are that a person must have held the interest for two or more years, and the business must be trading in nature.

Subject to the above, the relief from Inheritance Tax is currently 100% meaning that no Inheritance Tax is payable on an interest in a trading business regardless of value.

This is a vital relief and enables family run businesses to pass from one generation to another unburdened by Inheritance Tax.

A further 50 per cent Business Relief is available on a controlling holding of shares in a quoted company and on land, buildings, machinery or plant used wholly or mainly for the purpose of the business carried on by a company or partnership.

What will happen to Business Relief in April 2026 changes

For any deaths on or after 6th April 2026 this relief will be capped at £1m per person. After which those assets which qualify for Business Relief will be subject to Inheritance Tax at a reduced rate of 20 per cent, usually 40 per cent.

In addition to the above, shares in a qualifying company listed on the AIM market will not be eligible for the £1m allowance and will be subject to Inheritance Tax at 20 cent on the whole value.

This is going to have a significant impact on businesses, particularly family-run businesses where the intention is to pass the business to the next generation and for it not to be sold on death.

November 2025 Budget changes

Thankfully, the Chancellor has confirmed the £1m allowance will be transferable between spouses, having said in 2024 that it wouldn’t. This is a relief to many family businesses.

However, it’s still advisable for family business owners to capture the relief available on first death so that if the business is subsequently sold, the net proceeds of sale will be ring-fenced, for Inheritance Tax purposes, within the trust.  

This requires wills to be updated to include such a trust, and the surviving spouse can be beneficiary of the trust, together with children and other descendants but crucially those assets placed into the trust will not aggregate with the survivor’s estate for Inheritance Tax purposes.

This means that while the spouse can benefit from the business (for example take dividend income), the capital value, or its net proceeds of sale, will not be included in their estate for Inheritance Tax purposes.

The upcoming changes to Inheritance Tax from April 2026 mean that seeking advice is now more important than ever before, to ensure a will is correctly drafted so it can maximise any reliefs applicable to someone’s estate.   

To see the difference between doing something now and leaving things until after April 2026, please see this example – What could happen to a business post April 2026?