Government raises inheritance tax threshold for businesses

The government has extended the inheritance tax relief threshold for farmers and businesses.

The 20% inheritance tax threshold will increase from £1m to apply to businesses worth more than £2.5m from April 2026, in a move that should better safeguard family-run hospitality businesses.

Almost half (47%) of hospitality businesses said they were affected by changes to business property relief which were first announced in 2024’s autumn Budget.

UKHospitality, which has been calling for the government to bring forward changes, welcomed the news. 

But while the trade body noted this as a positive development, it was firm to point out that many businesses will still be facing significant inheritance tax bills and that the government should continue to engage with the sector on further solutions.

Kate Nicholls, chair of UKHospitality, said: “Family-run businesses are part of what makes much of hospitality so special, with generation after generation taking on the family pub, restaurant or hotel to continue its legacy.

“The original changes to Business Property Relief put all of that at risk, with businesses up and down the country suddenly facing tax bills running into tens of thousands of pounds.

“We have worked extensively with the treasury and MPs across Parliament to highlight the unintended consequences of this policy and the impact it could have on local communities, particularly in rural and coastal areas.

“I’m pleased these concerns have been heard loud and clear, and that the government has acted. This does go some way to safeguarding family-run hospitality businesses. It’s critical this engagement with the sector continues, as there is still more that can be done.”

In this year’s Budget, Rachel Reeves did not indicate she intended to change inheritance tax plans.

However, the government did allow spouses to transfer any of their now £2.5m allowance before inheritance tax kicks in between partners. This means if one partner dies and only uses part of their allowance, the surviving partner could have an allowance of more than £2.5m.