BPR in one paragraph: qualifying business assets get either 100% or 50% IHT relief, separate from the nil-rate band. Most relevant categories: an unincorporated trading business (100%), unquoted trading-company shares (100%), AIM-listed shares (50% from April 2026), controlling holding in a quoted company (50%), and land/buildings/machinery used in a business you control (50%). You must have owned the asset for 2 years before death (or transfer). Note: from April 2026, combined BPR/APR relief at the 100% rate is capped at a £2.5m allowance per person (transferable between spouses); above that, 50% relief applies — and AIM shares get 50% without using the allowance.
The two rates of BPR
| Asset type | Rate |
|---|---|
| Unincorporated business or interest in one (sole trader, partnership) | 100% |
| Unquoted shares in a trading company (not AIM-listed) | 100% |
| AIM-listed shares (from April 2026) | 50% |
| Shares giving control (over 50%) of a quoted company | 50% |
| Land, buildings, machinery or plant used wholly/mainly for the purposes of a business you control | 50% |
| Land, buildings, machinery or plant used in a partnership of which you were a partner | 50% |
From 6 April 2026 the 100% rate applies only within a combined BPR/APR allowance of £2.5m per person (transferable between spouses and civil partners); value above the allowance gets 50% relief — an effective 20% IHT rate. AIM-listed shares get 50% relief in all cases and do not use the allowance.
What does NOT qualify for BPR
The relief targets active trading businesses. Several categories are excluded:
- Investment businesses. Businesses "wholly or mainly" dealing in securities, stocks, shares, land or buildings, or holding investments. This rule excludes pure property landlords (residential and most commercial) and pure investment-vehicle companies.
- Excepted assets: assets held by an otherwise-qualifying business that aren't used in the trade (e.g., excess cash beyond working capital, investment property). The relief is restricted in proportion.
- Recently acquired assets: assets owned less than 2 years (with limited exceptions for replacement assets and inherited assets).
- "Binding contract for sale" assets: if you've already agreed to sell the business at death, BPR doesn't apply.
The "wholly or mainly" trading test
For BPR to apply to a company's shares, the company must be carrying on a trade as opposed to being "wholly or mainly" an investment business. HMRC uses several tests, including:
- Income source: what percentage of turnover is from trading vs investment?
- Capital allocation: how much of the balance sheet is invested in trading vs investment assets?
- Time spent: how much management time is dedicated to trading activities?
- Profit composition: trading profit vs investment income?
HMRC's rule of thumb is approximately 50% threshold — if more than 50% of the business is investment by these tests, the company fails. The leading case is Brander v Revenue and Customs (2010) on a mixed estate with farming and let property.
AIM shares: the popular BPR retail strategy
AIM-listed shares are technically "unquoted" for IHT purposes (AIM isn't a "recognised stock exchange" for IHT). Until April 2026 most AIM shares qualified for 100% BPR after 2 years of ownership, which spawned a significant industry of "AIM IHT portfolios" run by investment managers like Octopus, Puma, and Unicorn. From 6 April 2026, AIM and other "not listed" shares get 50% relief only — in all circumstances — and they do not use the £2.5m allowance. That means an effective IHT rate of 20% on a qualifying AIM holding.
Practical points:
- Hold the shares for 2 years before they qualify.
- Some AIM shares don't qualify (typically those that have moved to AIM from being listed elsewhere; or those whose business model fails the trading test).
- AIM shares are volatile and often illiquid — the IHT saving can be wiped out by capital loss.
- At 50% relief, a £5m qualifying AIM portfolio leaves £2.5m taxable — £1,000,000 of IHT that would have been zero under the pre-2026 rules.
The April 2026 BPR reform
The October 2024 Budget announced a major BPR reform effective from 6 April 2026, and a government update announced on 23 December 2025 increased the allowance before it took effect:
- Combined BPR and APR relief at the 100% rate is capped at £2.5m per individual (originally announced as £1m, raised to £2.5m before commencement).
- Above £2.5m, the relief drops to 50% on the excess — an effective 20% IHT rate.
- This effectively introduces a £2.5m "business allowance" similar in concept to the nil-rate band.
- Unused allowance is transferable between spouses and civil partners (up to £5m per couple), including where the first death was before 6 April 2026.
- AIM and other "not listed" shares get 50% relief only and do not use the allowance.
Impact on a £5m AIM portfolio:
- From 6 April 2026 the whole holding gets 50% relief: £2.5m remains taxable.
- IHT at 40% on £2.5m = £1,000,000 due.
- Pre-2026, this would have been zero IHT after 2 years of ownership.
The reform is the biggest IHT change in over a decade and significantly impacts estate-planning strategies dependent on BPR.
The 2-year ownership rule
BPR requires you to have owned the qualifying asset for at least 2 years immediately before death (or transfer). Exceptions:
- Replacement assets: a new business asset that replaces a sold one can count the original ownership period.
- Inherited assets: spouse-inherited assets can include the deceased spouse's ownership period.
- Successive transfers: if you gave the asset to someone who then died within 7 years, BPR can still apply if the recipient continued to hold qualifying assets.
For estate planning: start the 2-year clock now. Don't wait until terminal diagnosis — many BPR strategies fail the 2-year test by being implemented too late.
Worked example: family business owner
Mr K owns 100% of a UK trading company worth £4m. He has a separate £3m investment portfolio and a £1.5m house. He dies in May 2026 (post-reform).
| Asset | Value | Treatment | Taxable |
|---|---|---|---|
| Trading company shares | £4,000,000 | First £2.5m: 100% BPR; remaining £1.5m: 50% BPR | £750,000 |
| Investment portfolio | £3,000,000 | No relief | £3,000,000 |
| House | £1,500,000 | RNRB partially applies (but estate >£2m so RNRB tapered) | £1,500,000 |
| Nil-rate band | (£325,000) | Standard NRB | −£325,000 |
| Taxable estate | £4,925,000 |
IHT at 40% = £1,970,000. Pre-2026 (full 100% BPR on the company), it would have been roughly £1,670,000 — the reform adds £300,000 (40% of the £750,000 of company value that no longer gets full relief).
Common BPR mistakes
- Assuming all unquoted shares qualify. The trading test must be passed. Investment companies are excluded.
- Buying AIM "BPR portfolio" days before death. The 2-year clock starts on purchase. Last-minute strategies fail.
- Holding excess cash in a trading company. Cash beyond working capital may be treated as "excepted assets" and excluded from BPR. Distribute or invest it back into trade.
- Ignoring the April 2026 reform. Plans relying on unlimited 100% BPR no longer work for estates above £2.5m of BPR assets, and AIM shares now get only 50% relief.
- Not getting professional advice on complex cases. BPR is heavily litigated. Get a specialist if your estate's BPR claim is significant — the cost of advice is small relative to the IHT at stake.
Sources
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