What Is Business Relief for Inheritance Tax?

Business Relief is a valuable tax break that can reduce or even eliminate the Inheritance Tax bill on business assets and shares when someone dies or gives them away during their lifetime. For many family businesses, this relief makes the difference between being able to pass the business on to the next generation or having to sell assets to pay the tax bill.

What is Business Relief?

Business Relief (also called BR) reduces the value of business assets when calculating how much Inheritance Tax is due on someone's estate. Any ownership of a business — whether you own it outright, have a share in a partnership, or hold company shares — forms part of your estate for Inheritance Tax purposes.

The relief applies to business assets that are passed on either during your lifetime as a gift, or after your death through your will.

How much relief can you get?

Business Relief comes in two rates: 100% or 50%, depending on what type of business asset you're claiming relief on.

100% relief

You can claim 100% Business Relief (meaning no Inheritance Tax is due) on:

• A business or interest in a business (such as a sole trader business or partnership share)
• Shares in an unlisted company

However, for deaths on or after 6 April 2026, there's a cap on 100% relief. Only the first £2.5 million of qualifying business or agricultural property receives full relief. This limit includes business or agricultural property held in trust.

If the deceased had a spouse or civil partner who died before them, you may be able to transfer any unused allowance from their estate. This could increase the total allowance to £5 million. If the spouse or civil partner died before 6 April 2026, the full £2.5 million allowance can be transferred, even if their estate already claimed Business Relief.

50% relief

You can claim 50% Business Relief on:

• Any qualifying business property above the £2.5 million allowance
• Shares traded on markets that HMRC doesn't classify as 'listed', such as the Alternative Investment Market (AIM)
• Shares that give you control of more than 50% of the voting rights in a listed company
• Land, buildings or machinery you owned personally and used in a business you were a partner in or controlled
• Land, buildings or machinery used in the business and held in a trust you had the right to benefit from

The two-year ownership rule

To qualify for Business Relief, the deceased must have owned the business or asset for at least two years before they died. The same rule applies if someone gives away business property during their lifetime — they must have owned it for at least two years before making the gift.

What doesn't qualify

You cannot claim Business Relief if the business mainly deals with:

• Securities, stocks or shares
• Land or buildings
• Making or holding investments

Other exclusions include:

• Not-for-profit organisations
• Businesses being sold (unless the sale is to a company that will continue the business and the estate receives payment mainly in shares)
• Businesses being wound up (unless this is part of a process to allow the business to continue)

You also cannot claim Business Relief on an asset if it:

• Already qualifies for Agricultural Relief
• Was not used mainly for business purposes in the two years before it was gifted or passed on through the will
• Is not needed for future use in the business

If only part of an asset is used in the business, that part might qualify for relief. For example, if you use one room in a building as a shop and the other rooms as your home, the shop qualifies for Business Relief but the residential rooms don't.

Giving away business assets during your lifetime

You can give away business property or assets while you're still alive and still benefit from Business Relief, as long as the property qualifies.

For the relief to apply, the recipient must keep the assets as a going concern (actively trading) until your death. They can replace assets — such as machinery — with something of equal value if it's for use in the business.

Remember that any gift made more than seven years before your death doesn't count towards your estate for Inheritance Tax purposes at all.

Be aware that giving away or selling business assets during your lifetime may trigger Capital Gains Tax or Income Tax if the asset has increased in value since you acquired it.

Agricultural property and Business Relief

If you own agricultural property such as farmland, buildings or farm equipment that doesn't qualify for Agricultural Relief, you may be able to claim Business Relief instead.

How to claim Business Relief

As the executor of a will or administrator of an estate, you claim Business Relief when valuing the estate. You need to complete:

• Form IHT400 (Inheritance Tax account)
• Schedule IHT413 (Business or partnership interests and assets)

You must use the market value of the business or asset when calculating the relief.

The claim for any transferred allowance from a deceased spouse or civil partner must be made by the later of:

• Four years after the death of the person whose estate you're representing
• Six months after you started your role as executor or administrator

Sources

• Business Relief for Inheritance Tax

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.