Controversial new inheritance tax rules will be the most complex tax changes to affect family businesses in at least a generation.
With the UK Government confirming that from 6 April 2026, a new £1 million cap will apply to combined Agricultural and Business Property Reliefs, Grant Johnson and Alison McKay say many SME owners are only becoming fully aware of the significant impact this policy shift could have on their businesses and families.
Changes include the removal of 100% tax relief on business assets worth over £1m. Partner and Head of our Private Client team, Grant Johnson said: “The impact of this on family-owned businesses should not be underestimated.
“This is about property, not profit. Even for modest family SMEs, it is not - on paper, at least - difficult to find yourself with assets valued in excess of £1m.
“Planning for how to manage this when looking at how your business is passed along to the next generation - and factoring the cost of inheritance tax to that business - is challenging. In fact, I firmly believe that changes to inheritance tax are the most complex in at least a generation for family businesses to try and navigate.”
Chancellor Rachel Reeves announced reforms to inheritance tax rules in her October budget. And, while headlines have focussed on the furore around their impact on farms - with farmers no longer allowed to claim inheritance tax relief on farms worth more than £1m from April 2026 - other measures have not been as widely in the spotlight.
With Business Property Relief, which currently offers up to 100% relief on qualifying business assets, the first £1m of assets will remain fully exempt, with anything above that taxed at 20%.
On top of that, reforms to come into play later include bringing someone’s unused pension funds and death benefits into the scope of inheritance tax. Currently, most pensions are free of inheritance tax. Grant believes that a lot of the fine detail is going to catch people unaware.
“Awareness about the bigger picture is not as high as we might have expected it to be, albeit more people are now beginning to fully realise the implications of what’s coming.
“Discussion is growing about what the impact could be for the families of those who have held the likes of commercial property - offices, workshops or equipment - within self-invested personal pensions, for example.”
Currently, holding company assets within personal pensions allows business owners to draw rental income from those in retirement. They can then be left to beneficiaries tax-free and are often used as part of wider business succession planning.
“Not having that option could add significant financial pressures to family businesses, unless they take tailored legal and financial advice about how to manage their specific situations,” Mr Johnson added.
“No family business wants to end up in a position where it is having to sell assets to pay a tax bill that it was not prepared for.”
Farmers and landowners are also taking advice from specialists in our Rural – Land & Business team on changes that they may need to make as part of their business and succession planning.
Alison McKay, also a Partner in Lindsays’ Private Client team, added: “These changes are going to have a significant impact on how businesses plan to fund tax and pass the baton on to the next generation.
“We are not advising people to panic and rush into any changes, but to take a look at your current arrangements and what advice you might need to take the best possible steps.
“There is still a lot of detail to come from the UK Government, but starting the planning process as soon as possible could make a considerable difference to your business and family.”
At a glance: What the UK Government has announced
- From 6 April 2026, a new £1 million cap will apply to combined Agricultural and Business Property Reliefs (APR & BPR) for individuals and trusts.
- Assets above £1 million will receive 50% relief, resulting in an effective 20% inheritance tax charge.
- The £1 million allowance resets every seven years (10 for trusts), rises with inflation from 2030, and cannot be transferred between spouses.
- AIM-listed and EIS shares will now only qualify for 50% relief, so estate plans and wills may need updating.
Published 3 September 2025 and also featured with Insider.co.uk on 29 August 2025.
