Business Property Relief From April 2026: What the £2.5m Cap Means for STL Portfolio Succession

In short: From 6 April 2026, the previously uncapped 100% Business Property Relief is capped at £2.5m combined with Agricultural Property Relief, with any excess relieved at 50%. Even before that cap, the abolition of the FHL regime in April 2025 broke the already-precarious argument that STL properties qualified for BPR at all. Most STL portfolio holders now have no meaningful IHT relief and need succession planning to reflect that.

Two changes in eighteen months have upended the inheritance tax position of the typical UK short-term let portfolio. Neither on its own was a hammer blow. Taken together they leave most STL owners with essentially no IHT relief on the properties themselves and a live succession planning problem.

Change one: FHL abolition breaks the BPR argument

Business Property Relief has never automatically applied to residential letting. The long-standing HMRC position, backed by a line of tribunal decisions, is that a business consisting "wholly or mainly of holding investments" — which is how HMRC characterises most property letting — does not qualify.

For Furnished Holiday Lets, there was a narrow route: a small number of highly-serviced FHL operations, where the operator provided so much beyond bare accommodation (staffed reception, meals, guided activities, laundry included as of right, and so on) that HMRC would accept the activity as a trade rather than an investment. Even then, tribunals were unpredictable — the Personal Representatives of Ross case in 2017 refused BPR on a well-serviced FHL, and the vast majority of subsequent decisions have gone the same way.

The abolition of the FHL regime from 6 April 2025 removed even the label that anchored these arguments. The property is now, for all income and CGT purposes, a standard property business — and BPR is essentially unavailable to any property business that is not a genuine trading enterprise with substantial services.

Change two: the £2.5m cap arrives 6 April 2026

Announced in the October 2024 Budget, the £2.5m cap on 100% BPR and APR takes effect from 6 April 2026. Combined qualifying property below the cap continues to receive 100% relief; the excess drops to 50% relief.

For any client whose business assets — trading business shares, qualifying land, and any surviving BPR-eligible property — sit above £2.5m, this is a material change. Combined with the FHL point above, the practical position for the typical STL portfolio holder is that:

• The STL properties themselves attract no BPR at all.
• Any genuine trading businesses the client owns alongside the STLs now share a capped relief pool.
• The estate's overall IHT exposure has grown, not shrunk, over the last 18 months.

What succession planning looks like now

For an STL owner with any material portfolio value, four planning steps are now standard on our advisory work:

1. Lifetime gifting into trust, with careful CGT modelling. Trusts remain a useful IHT planning tool, but the CGT position on transfer needs modelling — post-FHL, holdover relief is not automatically available on a property transfer to a discretionary trust as it once was under some FHL structures.

2. Incorporation of the portfolio, then share planning. Moving the portfolio into a limited company creates an asset (shares) which can be structured, gifted, and passed through generations more flexibly than land. Incorporation itself has costs (SDLT/LBTT/LTT, CGT on the transfer, mortgage refinancing) and only makes sense where the ongoing benefits — including the mortgage interest treatment covered in our FHL abolition analysis — justify them. It is not universally right; it is universally worth modelling.

3. Life cover written into trust. Where the IHT liability crystallises on death, a whole-of-life policy written into trust can provide the cash to settle it without forcing a distressed disposal. Premiums are covered by lifetime giving allowances in most cases.

4. Documented, evidenced trading activity where the argument can be made. For the small subset of STL businesses that genuinely operate as serviced accommodation businesses (managed guest handovers, cleaning provided as of right, meaningful concierge services, active marketing), there remains a narrow BPR argument for the trading company shares — but the evidence needs to be contemporaneous and substantial. This is a live case-by-case question, not a policy assertion.

What operators should do

1. Get a current IHT projection. If your last IHT review was more than 18 months ago, it is out of date.
2. Do not assume "it will qualify for BPR" without a specific advice memo. The default position for STL property is now that it does not.
3. Where portfolio value is above £2.5m combined with other business assets, plan on the assumption that the excess is exposed at 40%. That is a material number that changes what an estate is worth.
4. Model incorporation on lifetime and death metrics simultaneously. The right structure for a 20-year holding horizon is often not the right structure for a five-year exit.

The IHT position of an STL portfolio in 2026 is not the position it was in 2023. Every one of our portfolio clients has now had this conversation. Every one has taken planning action of some kind as a result.

Book a free consultation to review your position.

Sources: House of Commons Library — Changes to agricultural and business property reliefs; Royal London — Business relief changes from 6 April 2026; Property Tax Partners — BPR on rental property; Landlord Zone — Will we pay inheritance tax on my property business after April 2026?.