News
Inheritance Tax, Business Property Relief and the Balfour Matrix
23 May 2025
The recently announced Inheritance Tax (IHT) reforms will overhaul Agricultural Property Relief (APR) and Business Property Relief (BPR), resulting in potentially significant tax liabilities for the next generation of heirs.
Estates can currently claim up unlimited 100% relief on qualifying APR and BPR assets, but the government plans to introduce a combined cap for and BPR at £1 million from April 2026 for assets qualifying for 100% relief. Anything above this threshold will only receive 50% relief.
For those with substantial business assets or AIM-listed holdings, the changes will undoubtedly impact intergenerational wealth transfer.
Despite the changing times, the Balfour Matrix remains a highly effective and strategic tool for mitigating IHT exposure.
The Balfour Matrix is a structured framework used to assess whether an interest in a business may qualify for BPR under IHT rules. The landmark Balfour Case established that businesses primarily engaged in trading activities, rather than investment holdings, could benefit from this relief.
It is imperative that business owners with diversified activities consisting of trading activities, rental properties, investments and passive income streams reassess and possibly restructure their assets into a trading business model.
What you need to know:
- The £1 million cap on 100% APR and BPR assets comes into force in April 2026, limiting tax relief for business owners.
- Qualifying assets over £1 million will only receive 50% relief.
- Business Owners, Executors of Estates and their Advisors will be likely to face greater scrutiny when claiming APR and BPR and valuing interests in such assets.
- IHT reforms may increase the trading threshold for BPR, making it harder to qualify.
- The Balfour Matrix assesses your eligibility for BPR and could help in identifying areas of risk or opportunity.
While the final reforms have yet to be determined, it is clear that the relief regime is becoming more restrictive under this government. With less than a year to go until the changes may potentially be implemented, now is the time to review your estate. The Balfour Matrix may highlight innovative ways to minimise future tax liabilities.
We are here to help business owners and shareholders for advice on this matter. With careful, timely planning and the right guidance, businesses may still be passed down efficiently with reduced tax risk and tax implications.
