BPR & APR £2.5M Cap from 6 April 2026 — What Business and Farm Owners Need to Know

From 6 April 2026, the UK’s long-standing 100% Business Property Relief (BPR) and Agricultural Property Relief (APR) regime is replaced by a capped version. The Finance Act 2026 (s65 / sch 12) introduces a £2.5 million combined allowance that preserves 100% relief for most family businesses and farms, but drops relief to 50% above the cap — and AIM-listed shares are permanently capped at 50% regardless of the allowance.

If you are a business owner, farmer, or hold a meaningful AIM portfolio with an estate likely to exceed £2.5M of qualifying assets, this is the most significant change to inheritance tax policy for your estate since BPR was last materially reformed in 1996.

Summary of the Changes

Combined with the existing nil-rate band (£325,000) and residence nil-rate band (£175,000), both of which remain transferable between spouses, a married couple with full allowances can potentially pass up to £5M of qualifying BPR/APR property + £650k + £350k = £6M IHT-free — provided the main residence passes to direct descendants and the full estate is below the £2M RNRB taper start.

Why It Changed — and Why the Number Is £2.5M

The original proposal in the Autumn Budget 2024 set the combined allowance at £1M per person. That caused significant pushback from farming and business owner groups, with particular concern that family farms valued at £2–4M (common across much of rural England) would face meaningful IHT on death for the first time. On 23 December 2025, the government announced the allowance would be raised to £2.5M per person before the rule took effect. The 50% relief above the cap and the AIM 50%-flat rule remained unchanged.

The effect is that most family farms (median UK farm values cluster well below £2.5M) and most closely-held trading businesses keep full 100% relief. The cap bites only at the upper tail — large farming estates, substantial family businesses, and AIM portfolios.

Who Is Affected

Not affected (or minimally affected):

• Estates below £2.5M of qualifying BPR + APR property with no AIM shares. 100% relief still applies; no IHT on the qualifying property.
• Couples with a combined qualifying property of under £5M and full spouse transfer of the allowance. Same 100% outcome via the transferable allowance mechanism.

Moderately affected:

• Estates £2.5M–£10M of qualifying property. The excess above the allowance moves to 50% relief — an effective 20% IHT rate on the excess, not 40%.
• AIM portfolios. Previously 100% relief regardless of value; now flat 50% → 20% effective IHT on the full AIM holding, separate from the £2.5M allowance.

Significantly affected:

• Large agricultural estates (£10M+). Substantial portions now face 20% IHT where previously there was 0%.
• Large closely-held business interests with weak succession planning (no spouse transfer, no lifetime gifting strategy).
• Estates mixing AIM and qualifying BPR property where the AIM allocation is large. The AIM 50% rule is punitive for holders who bought AIM shares specifically for the 100% relief that no longer exists.

Worked Example: A £5M Farm

Take a farming couple with land and buildings valued at £5M, owned jointly (£2.5M each), main residence worth £800,000 within the farm, no AIM, and both leaving everything to direct descendants.

Before 6 April 2026:

• APR: 100% on £5M → £0 chargeable
• Residence: potentially covered by NRB + RNRB
• Total IHT: £0

From 6 April 2026 (if both spouses use full allowance via transferability):

• APR: £5M combined / £5M allowance (£2.5M each) → 100% → £0 chargeable
• Residence: as before
• Total IHT: £0

From 6 April 2026 (if first spouse leaves everything to the surviving spouse, no lifetime planning):

• First death: spouse exemption applies, no IHT, £2.5M allowance unused and transfers to survivor
• Second death: £5M APR vs £5M effective allowance → still £0

From 6 April 2026 (single survivor with £5M of farm, no spouse transfer available):

• APR: £5M / £2.5M allowance → £2.5M at 100%, £2.5M at 50% → £1.25M chargeable
• Less NRB + RNRB (if residence applicable) ≈ £500k → £750k taxable × 40% = £300,000 IHT

The difference between using spouse transferability and not using it is £300k on this fact pattern. Will-drafting discipline suddenly matters for farming estates at the cap boundary.

What to Do Now

1. Review Estate Composition Against the £2.5M Threshold

Before April 2026, inventory your qualifying BPR and APR property at current market value. If the combined total is well below £2.5M per person and you are married, the change is benign for you; no action required.

2. Confirm Spouse Transferability Is Locked In

The £2.5M allowance is transferable between spouses and civil partners on the same percentage basis as the standard nil-rate band — unused percentage on first death passes to the survivor. For this to work cleanly, keep wills current, ensure joint ownership structures are explicit, and if an older will leaves qualifying property directly to children rather than to the surviving spouse, review whether that structure still matches your intent under the new rules.

3. Consider Lifetime Gifting Above the Cap

Gifts to individuals (as PETs) become exempt after 7 years. If your qualifying property is well above £2.5M (say £5M individually), gifting £2.5M+ to the next generation 7+ years before death removes that tranche from the estate entirely, avoiding the 50%-relief trap on the excess. Timing matters — the 7-year clock only runs forward, not backward — and the value of the gifted property on the date of the gift (not death) is what counts for PET purposes.

4. Re-evaluate AIM Portfolio Tax Logic

The AIM-BPR pairing was historically a tax-driven portfolio strategy: hold AIM-listed shares for 2+ years and the entire holding passes at 100% relief. With 50% relief now the permanent ceiling, the IHT savings are half what they were — a £1M AIM portfolio saves £200k at death vs £400k before. For many holders, this changes the underlying portfolio math: AIM’s higher volatility and thinner liquidity are less compensated. Consult a wealth manager before any large reallocation; tax is one factor among several.

5. Test Trading-Status Boundaries

BPR requires the business to be “wholly or mainly” a trading business — not an investment business. Historically this test was sometimes loosely applied for borderline cases (property development companies, mixed holding structures) because the relief was 100% regardless. With £2.5M+ portfolios now staring at meaningful IHT, HMRC enquiries on trading-status disputes will likely become more consequential. If you own a mixed-activity company, get a professional opinion before death rather than leaving it for executors to argue.

What This Doesn’t Change

• The 7-year PET rule. Gifting qualifying property during life and surviving 7 years still removes it from the estate.
• Spouse exemption. Unlimited transfers between UK-domiciled spouses remain entirely exempt from IHT.
• Nil-rate bands. £325k NRB + £175k RNRB, both transferable, are unchanged.
• 40% top rate. IHT above allowances is still 40%. The reform works via relief percentages, not via changing the headline rate.
• The £2M RNRB taper. Residence nil-rate band still tapers £1 for every £2 over £2M total estate value.

Key Takeaway

For most family business owners and farmers — those with qualifying property below £2.5M per person — the April 2026 reform is benign. 100% relief still applies and the existing planning around wills, spouse transfers, and step-up of basis at death continues to work. For estates well above the cap, the new 50% relief regime means an effective 20% IHT rate on the excess — less than the 40% standard but far more than the previous £0. Lifetime gifting, spouse allowance transferability, and a clean trading-status test now matter in ways they did not between 1996 and 2025. Use the BPR & APR calculator to model the exact impact on your estate, and plan the next review with your solicitor well before the first qualifying event.