Business Property Relief announcement

On Wednesday, the Chancellor of the Exchequer announced changes to Business Property Relief (BPR) which will take effect from April 2026:

• A £1 million limit on 100% IHT relief for combined BPR and Agricultural Property Relief for individual estates
• Above the £1 million threshold, relief will be reduced to 50%
• BPR for shares traded on unrecognised exchanges, including the Alternative Investment Market (AIM) and Aquis, will be reduced to 50% on all qualifying assets
  • This still represents a 20% tax saving for beneficiaries
• Nil-rate and residence nil-rate bands have been frozen at £325,000 and £175,000 respectively for two more years to 2029-30

While we are relieved that qualifying AIM shares have retained some of their BPR benefits, and the £1 million cap will impact few of our clients, the changes will potentially have a number of negative consequences.

As far as one can tell from the various primary sources, existing clients who pass away after April 2026 will lose half of the relief that they have established over time. Those clients who have invested into CITS over the last six months will not see 100% BPR.

The Budget seems to prioritise investment in private businesses and punish those with a market quote.

From our perspective this seems perverse as public companies offer better governance, more regulatory scrutiny, higher standards of ESG reporting, more liquidity and less opaque pricing of underlying assets. They should rightly be seen as representing the cream of the crop in their peer groups.

Most frustratingly, HMRC estimate the total tax cost to the Exchequer relating to AIM shares in the 2021/22 tax year was £185 million. One would question whether these savings offset the potential downside from the announced changes.

On a more positive note, AIM and Aquis shares still have the advantage of ISA eligibility, offering clients the opportunity to invest with no capital gains or income taxes.

With the announcement that pension pots will now form part of an individual’s estate from 2027, there is the potential that demand for other planning options, including CITS, will grow.

We feel that the opportunity set of companies that offer good growth prospects at very reasonable valuations remains full and we look forward with confidence.

We are continuing to digest the content in the Budget and will provide further comment as appropriate.

We will try and answer any questions as soon as practical, but please note that we may be a little busy over the next few weeks.