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The £2.5m business relief cap, six months on: why your share valuation now decides the inheritance tax bill

Since 6 April 2026, only the first £2.5m of qualifying business and agricultural property gets full inheritance tax relief. Above that, every £1m of value costs £200,000 in tax. With the Budget on 28 October, here is what family business owners should have on file.

James Nelson · 15 October 2026

Rules as at October 2026. This page will be updated on Budget day, 28 October 2026.

Until April, the exact value of a family company often made no difference to the inheritance tax bill. Now every £1m above the allowance is £200,000 of tax. A careful valuation done now, with reasoning HMRC can follow, costs far less than arguing over one after a death.

From 6 April 2026, 100% inheritance tax relief on business and agricultural property is capped at a £2.5m allowance per person, with 50% relief above that, an effective tax rate of 20% (Finance Act 2026, section 65 and Schedule 12). For a family company worth more than the allowance, the value of the shares now sets the tax bill directly.

Business property relief (BPR), now often called inheritance tax business relief, still applies in full up to the allowance. The change is what happens above it.

What changed on 6 April 2026?

The cap was announced at the October 2024 Budget at £1m. Transferability between spouses was added at the November 2025 Budget, and the allowance was raised to £2.5m on 23 December 2025. HMRC expects up to 1,100 estates to pay more inheritance tax in 2026-27, down from around 2,000 under the original £1m plan (GOV.UK, 23 December 2025, and House of Commons Library briefing CBP-10181).

How much inheritance tax does a family business pay now?

These illustrations assume a single owner whose shares fully qualify for business relief, with the allowance unused. They ignore the nil-rate band, other assets in the estate and any excepted assets.

On the £6m example, interest-free instalments would spread the £700,000 over 10 years at £70,000 a year.

Why does the valuation matter more than it did?

Before April, shares that qualified for 100% relief often carried no inheritance tax whatever their value. A generous or cautious figure made little practical difference.

Above the allowance, every £100,000 of value is now £20,000 of tax. On a £6m company, a 20% difference in the multiple moves the value by £1.2m and the tax by £240,000.

The value is reported to HMRC on form IHT400, with IHT412 for unlisted shares. HMRC's Shares and Assets Valuation team reviews the values of unlisted shares, so the figure has to stand up to scrutiny, not just be filled in.

How does HMRC value shares in a private company for inheritance tax?

• Open market value. Shares are valued at the price they might reasonably be expected to fetch in a sale on the open market at the date of death or transfer (section 160, Inheritance Tax Act 1984).
• The size of the holding matters. A controlling holding is valued differently from a minority one, and minority holdings are normally discounted. See how to value shares in a private company.
• Related property. Shares held by a spouse or civil partner can be aggregated with your own when valuing your holding (section 161).
• Excepted assets. Surplus cash or investments not used in the trade do not qualify for business relief (section 112), so they need identifying in the valuation.
• AIM shares are valued at market price and receive 50% relief.

What might the 28 October Budget change?

Confirmed: the draft Finance Bill 2026-27, published on 13 July 2026, contained no measures on capital gains tax rates, Business Asset Disposal Relief, inheritance tax reliefs or Employee Ownership Trusts.

Reported, not confirmed: on 13 October 2026, Reuters reported the Financial Times as saying Chancellor John Healey will not raise capital gains tax to income tax levels, though a smaller increase remains possible. During the Makerfield by-election campaign, before becoming Prime Minister on 20 July 2026, Andy Burnham said the inheritance tax position for family farms "needs looking at again" (Yorkshire Post, 12 July 2026).

Nothing on business relief has been announced. We will update this page on Budget day.

What should a family business owner check before 28 October?

Your accountant or tax adviser sets the strategy. The valuation is the number it rests on.

• A dated, independent valuation of your shareholding on file, with the reasoning set out.
• A map of who holds what: you, your spouse, children and any trusts, and how related property affects each holding.
• Your spouse's allowance: whether it is used, unused or transferable.
• Excepted assets: surplus cash or investments in the company that would fall outside relief.
• Funding: how any tax above the allowance would be paid, through instalments, life cover or company resources.
• Gift timing: gifts since 30 October 2024 count against the allowance if death follows within seven years.
• If you are considering a sale: Business Asset Disposal Relief rose to 18% on 6 April 2026 (from 14%), with a £1m lifetime limit. Capital gains tax relief on sales to an Employee Ownership Trust was halved to 50% of the gain for disposals from 26 November 2025. Since 30 October 2024, EOT trustees have also had to take all reasonable steps to ensure they pay no more than market value. A sale does not remove the valuation question. It moves it.

What does a defensible valuation for business relief include?

A valuation HMRC can follow sets out the statutory basis, normalised earnings, a multiple drawn from transaction evidence, the treatment of the size of the holding, any excepted assets, and the valuation date. See our HMRC tax valuations for inheritance tax and business relief and business valuation for probate and IHT400.