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A UK guide to Business Relief and using life insurance for inheritance tax planning

Business Relief (BR) helps lower the cost of business assets when calculating the amount of Inheritance Tax (IHT) that needs to be paid. But while BR can provide up to 100% relief, the government has announced that the level of relief will be capped at £1 million from April 2026, which could leave loved ones facing a hefty IHT bill.

28.10.25

By Alan Boswell Group

What is business relief?

We look at how Business Relief works, and how a life insurance policy can cover any remaining IHT so that valuable assets don’t have to be sold.   

Business Relief changes 2026 – the £1 million cap explained 

Currently, Business Relief is not capped. It means that there is no limit to how much can be exempted from Inheritance Tax. The Treasury reports that in 2021/22, this cost them around £1.1 billion. 

From April 2026, Business Relief will be capped at £1 million, which means that: 

  • qualifying assets up to £1 million can still get 100% relief; 

  • any remaining assets valued over the £1 million limit will qualify for 50% relief. 

The £1 million cap is per person and is not inheritable between spouses (unlike other IHT exemptions). 

 

What happens if assets qualify for Agricultural Property Relief? 

Agricultural Property Relief (APR) is another type of IHT relief. If you have both agricultural property and business property, the new £1 million limit applies to both types of assets combined.  

As long as your combined assets are no more than £1 million, your beneficiaries can still claim 100% relief. For example, if you had £600,000 worth of agricultural property and £400,000 worth of business property, the combined assets would still qualify for 100% relief.  

 

Are assets qualifying for 50% relief included in the £1 million allowance? 

No. Assets that only qualify for 50% will not use up the £1 million allowance. 

Does the £1 million allowance affect trusts? 

Yes. Some trusts that hold property are charged IHT every ten years. These trusts are also taxed if a property leaves it. Both APR and BR can be applied to property in trust; however, from April 2026, they will also be subject to the £1 million limit.  

This means that when tax is due (every ten years or when a property leaves the trust), the amount of relief that can be claimed will be limited to £1 million. Again, the limit will apply to combined agricultural and business assets if the trust includes both. 

What other BR changes are there? 

Another change is that shares not listed on a recognised stock exchange, including shares listed on the Alternative Investment Market (AIM), will only be able to claim 50% Business Relief (as opposed to the current 100%). A list of recognised stock exchanges can be found at GOV.UK.  

The rules around lifetime transfers (for example, gifting assets to family) will also change if it qualifies for BR. Gifts made on or after 30 October 2024 will also be affected by the £1 million cap if the benefactor dies within seven years. Beneficiaries can still claim 100% relief, but only up to £1 million. 

 

How does Business Relief work? 

Business Relief is one of several reliefs that can apply to Inheritance Tax. The primary purpose of BR is to reduce the amount of IHT, allowing businesses to continue after a business owner or investor has passed away. 

BR safeguards the future of many small and medium-sized enterprises (SMEs), which make up 90% of businesses in the UK and are a hugely valuable source of income and employment. Without Business Relief, many firms would be unable to afford the IHT owed and might be forced to close as a result. 

Key benefits of Business Relief include: 

Keeping the family business alive 

In family businesses, assets are often gifted to family members without any money exchanging hands. In certain circumstances, those assets can still qualify for Business Relief even after they’ve been gifted, for example, if: 

  • The donor owned the asset for at least two years before giving it away. 

  • The recipient has continued to operate the business as a going concern or has continued to use the asset for business purposes until the donor’s death. 

  • The original asset (such as building, land, machinery) has been replaced with a similar asset of equal value for business purposes. 

 

Leaving more to beneficiaries 

Business Relief can play a crucial role in planning the transfer of wealth and businesses. Claiming BR can help lower the amount of IHT due, so that your family is not faced with a huge tax bill when they inherit. 

Investing in assets that qualify for BR has the potential to increase your wealth, although there’s also a risk of loss, leaving you and your family with less money than you started with. However, depending on the amount of money invested and the types of assets you own, even a loss of capital can sometimes be outweighed by the amount of money saved from the IHT exemption.

Maintain ownership of wealth 

Investing in assets that qualify for BR allows you to keep your wealth. As well as ownership of the asset, you’ll also enjoy any income or profit it generates. This can help you avoid gifting assets which you may need to sell if you need funds for nursing care or if you need to adapt your home as you age.  

What are the risks of Business Relief? 

If you invest in assets that qualify for Business Relief, there is always the risk that their value decreases so that they’re worth less than originally anticipated. 

Changes to tax rules (as with the new £1 million cap) can also affect how much relief can be claimed. In the future, this may also change, which can create uncertainty.  

 

What business assets qualify for Business Relief? 

You can claim 100% Business Relief on: 

  • Trading businesses or interest in a trading business. 

  • Shares in companies not listed on a recognised stock exchange, including shares in AIM companies. 

You can claim 50% Business Relief on: 

  • Shares controlling more than 50% of voting rights in a listed company. 

  • Land, buildings, or machinery owned by the deceased person and used in a business they owned or controlled. 

  • Land, buildings, or machinery used in a business and held in trust for the beneficiaries.  

  • Qualifying assets valued over £1 million (from April 2026). 

  • Shares in companies not listed on a recognised stock exchange, including shares in AIM companies (from April 2026).  

Assets that do not qualify for Business Relief: 

You cannot claim BR for businesses that: 

  • Are not-for-profit organisations or charities. 

  • Wholly or mainly deal with stock, shares, securities or that hold and make investments. 

  • Are involved in property letting. 

  • Are in the process of being sold (unless it is being sold to a company that will carry on the business, and the estate will be paid mainly in shares of that company). 

  • Are being wound up, unless this is part of a process that will allow it to continue.   

In all cases, BR only applies where the deceased has owned the asset for at least two years. 

How is Business Relief claimed? 

The person executing the will or managing the estate can claim Business Relief by filling in two forms available on GOV.UK: 

How life insurance can help pay the remaining IHT tax bill 

Life insurance provides your loved ones with a cash payout when you pass away. You can choose how much cover you need (the amount your beneficiaries will receive) and the length of your policy.  

Two of the main types of life insurance categories are: 

  • Term life insurance – policies are only active for a certain length of time (which you agree with your adviser). If you live longer than the policy's term, it will expire, and no payout will be made. 

  • Whole of life insurance – these policies last for the entirety of your life. There is no fixed term, so your loved ones will receive a lump sum payment upon your passing (subject to any policy conditions). These policies are sometimes referred to as life assurance. 

The lump sum payment can be spent on anything, but it’s typically aimed at easing the financial burden on your loved ones when you pass away (particularly if you’re the main earner), and it could be used to cover any remaining IHT owed. The payment could also be used to cover university fees, bills, and mortgage payments. 

 

Can life insurance be used to pay Inheritance Tax? 

A whole of life insurance policy can be used to pay IHT, but only if it is set up ‘in trust’. If it isn’t set up this way, then the policy is considered part of your estate, and its value can be taxed.  

Setting up your policy in trust separates it from your estate so that it no longer belongs to you (and cannot be charged IHT). It essentially belongs to the trustees (the people responsible for managing the trust). It also means that the cash payout can be made immediately and does not have to go through probate.  

This readily available lump sum can then be used to pay any Inheritance Tax owed. For example, if an estate is left with an IHT bill of £150,000, a whole of life policy for this amount can be used to pay it off, without needing to sell other valuable assets, such as the family business. 

Alternatively, for business owners looking to pass on the family business without leaving a large IHT bill, a term life insurance policy could be used to cover the seven year period where IHT is liable after the business has been gifted to descendants.  

What are the benefits of life insurance? 

Life insurance can give your family a much-needed financial safety net during a stressful and difficult time. Not only that, but carefully planned policies can also play a crucial role in your estate planning and help cover outstanding debts, including Inheritance Tax (IHT). 

Everyone’s circumstances are different, so if you’re considering setting up a life insurance policy in trust, it’s important to speak to an expert who can explore your options with you.  

Need help with your insurance?

At Alan Boswell Group, our independent financial advisers are focused on building long-term relationships, so we’ll always take the time to talk about what you’re looking to achieve and what a suitable policy looks like for you. To find out more, speak to our team,

Speak to us:  01603 967967

Please note, the value of investments and any income from them can go down as well as up and you might not get back the original amount invested. The past is not a guide to the future. 

Tax benefits depend on your individual circumstances and the laws concerning these can change. 

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