Expert Opinion: Why family-owned hospitality businesses need to plan for IHT changes

With changes to Inheritance Tax (IHT) business reliefs taking effect next year, the Xeinadin Group explains the unique challenges facing family-run businesses in the hospitality sector.

Changes to Inheritance Tax (IHT) business reliefs set to come into force next April have attracted a lot of controversy for the detrimental impact they will have on family-owned farms.

But recent figures suggest hospitality and leisure businesses could be just as hard hit. According to a members’ survey carried out by UK Hospitality, the British Brewers & Pubs Association (BBPA), the British Institute of Innkeeping (BII) and Hospitality Ulster, 47% of respondents said their business is family-owned, and could therefore be affected by proposed changes to Business Property Relief (BPR).

What is Business Property Relief?

Like the well-publicised Agricultural Property Relief (APR), BPR has long provided an exemption from IHT when business assets are passed on to a family member upon the death of the owner. This has helped to ensure the continuity of family businesses across generations by avoiding punitive tax bills upon inheritance.

At present, BPR provides 100% relief (so no IHT due at all) on business assets held in a sole partnership, partnership or LLP, or in the form of shares in an unquoted trading company. It provides 50% relief when inherited assets come in the form of personally owned land, buildings, machinery or plant, or when a controlling stake in a quoted company is passed down to a family member.

How is BPR Changing?

From April 6th 2026, however, the 100% rate of relief will be capped at a lifetime allowance of £1m. That allowance will apply not only to assets held by the deceased at the time of death, but also to any qualifying assets transferred into trust, and to any gifted to the beneficiary within seven years prior to their death. Once the £1m personal limit has been passed, all subsequent assets that quality under BPR will be subject to 50% IHT relief, or a 20% rate of tax.

How Will the Changes Impact Hospitality Businesses?

The impact of this could be significant. Imagine, say, a chain of family-owned restaurants valued at £5m. Under the current BPR regime, a sole proprietor would have no concerns leaving his or her entire holding to their son or daughter as there would be no IHT due at all. But from April next year, there would be 100% relief on the first £1m only, and 50% relief on the remaining £4m. That would amount to an IHT bill of £800,000.

When surveyed about the likely impact of these changes to their business planning, half (51%) of affected hospitality business owners said it would lead to reduced investment, while a third (33%) believe it will negatively impact business restructuring. One in five (19%) say it will lead to increased debt.

Continue reading on the Xeinadin website.