Family‑owned businesses face “structural risks’ following the changes to Business Property Relief (BPR) that came into force this week, law firm Taylor Rose has warned.
The risks are likely to become much more visible once the reforms take effect and estates begin to feel the impact in real terms, the firm said, as it gears up for “a marked increase” in enquiries from families reassessing succession plans under the new framework.
Under the new rules, which came into effect on Monday, BPR will be capped at £2.5 million of qualifying business and agricultural assets combined per individual. Any value above that cap will only receive 50% relief, meaning that half of the excess value becomes subject to inheritance tax at 40% — an effective 20% tax charge on larger estates.
Shares listed on AIM and other ‘not listed’ exchanges will also lose their entitlement to 100% relief and instead qualify for 50% relief only, regardless of value. Married couples and civil partners can transfer unused BPR allowances, meaning a couple may be able to shield up to £5 million (£2.5 million each) of qualifying assets in total.
However, this does not remove the problem for larger estates, Taylor Rose pointed out – particularly where one spouse owns most or all of the business value, or where overall business value significantly exceeds the combined cap.
“In practical terms, many family businesses that previously assumed they could pass on the company intact may now face substantial tax liabilities — often without sufficient cash outside the business to pay them,” the firm said.
The changes are expected to hit hardest where ownership is concentrated and business value is high — particularly in multi‑million‑pound family‑owned companies where BPR has historically been a cornerstone of inheritance tax planning. As the true cost of the reforms becomes clearer, Taylor Rose believes many business owners will be forced to confront difficult decisions around ownership structures, control and long‑term continuity.
Jacob Robinson, private client partner at Taylor Rose, explained: “Business Property Relief has long underpinned the assumption that family‑owned companies could be passed on without triggering a tax event that threatens the business itself. That assumption no longer holds in the same way for larger businesses, particularly where company value exceeds the new thresholds and relief is no longer available in full.
“The impact will be felt most acutely by families whose wealth is tied up in the business rather than held in liquid assets. In those cases, even a 20% effective inheritance tax charge on part of the estate can create a funding problem that has no easy solution, especially where there is little spare cash outside the company.
“The key risk is delay. If these issues are not addressed early, there is a genuine possibility that estates will be unable to meet inheritance tax liabilities without selling, breaking up or otherwise destabilising businesses that are otherwise viable and successful. Once that pressure hits, the scope for careful planning narrows considerably.
“That is why we expect a sharp uptick in activity once the changes begin to bite — but those who engage early will be in a far stronger position than those forced to react when a tax liability has already crystallised.”
