Inheritance Tax Basics for Business Owners

How IHT works

IHT is charged at 40% on the value of your estate above the available nil-rate band. A reduced rate of 36% applies if at least 10% of the net estate is left to charity.

Nil-rate bands 2025/26

The RNRB is only available if you leave a qualifying residence to direct descendants and tapers above estates of £2m.

Business Property Relief (BPR) — 2025/26

BPR reduces the value of qualifying business assets for IHT:

• 100% relief: a sole-trader business, an interest in a partnership, unquoted shares (including most AIM shares)
• 50% relief: controlling shareholdings in listed companies, land/buildings/machinery used by a business you control

You must have owned the asset for at least 2 years at the time of transfer.

Major change from April 2026

For deaths from 6 April 2026, the combined 100% Agricultural and Business Relief allowance is £2.5 million, with 50% relief on qualifying value above the available allowance. Eligibility, transfers and trust rules still apply; qualifying AIM shares receive 50% relief. See HMRC relief guidance.

Lifetime gifts and the 7-year rule

• Potentially Exempt Transfers (PETs) — gifts to individuals are free of IHT if the donor survives 7 years
• Taper relief reduces the IHT charge on PETs made 3–7 years before death (it doesn't reduce the gift's value, only the tax)
• Annual exemption — £3,000 a year (can carry forward one year)
• Small gifts — up to £250 per person per year
• Gifts on marriage — £5,000 (parent), £2,500 (grandparent), £1,000 (others)
• Normal expenditure out of income — unlimited if regular and from surplus income

Trusts

Putting assets into a discretionary trust is a chargeable lifetime transfer (CLT), taxed at 20% above the NRB. Periodic charges apply every 10 years. Specialist advice essential.

Spouse exemption

Spouse/civil-partner transfers are generally exempt, but restrictions can apply where their long-term UK residence status differs. Residence-based rules replaced the domicile-based framework from 6 April 2025. Transfers of unused bands are subject to eligibility and claims. See HMRC residence rules.

Reporting

Reporting depends on the death date and whether the estate is excepted. Use HMRC’s current estate reporting guidance; do not assume the historical IHT205 route applies to a current death. IHT is payable 6 months after the end of the month of death; instalment options exist for land and unlisted shares.

---

General guidance, not tax advice. Speak to a qualified accountant for advice tailored to your situation. Figures relate to the 2025/26 UK tax year. Source: HMRC, gov.uk.