Family businesses and farms face a tougher inheritance tax landscape from 2026. Discover how LLPs can help adapt to the new rules on Business Property Relief and Agricultural Property Relief, protecting family control and reducing tax burdens.

The looming squeeze on family firms and farms – and how LLPs can help

Jonathan Lea September 30, 2025

Family-owned businesses and farms face a much tougher Inheritance Tax (IHT) landscape from 6 April 2026. The Autumn Budget 2024 announced a fundamental redesign of Business Property Relief (BPR) and Agricultural Property Relief (APR).

In short: a new £1 million “100% relief” allowance will cap how much qualifying business/agricultural property can pass tax-free. Above that level, relief falls to 50%. In addition, certain quoted-but-unlisted shares will only qualify for 50% relief in all cases. Draft legislation on trust and transitional rules has been in progress throughout 2025.

For many families, this shift risks cash-flow crises and even forced sales to meet IHT where previously none arose. Sector groups warn this could mean job losses and reduced investments if reliefs are cut back.

The good news is: there are legal structures that can help you adapt without losing family control. One of the most practical is the Limited Liability Partnership (LLP).

What’s changing with BPR & APR (from 6 April 2026)

A combined £1m allowance per individual’s estate for property qualifying for 100% BPR/APR. Once used, further qualifying value only attracts 50% relief.
For trusts, a separate £1m allowance applies, refreshed each 10-year anniversary for ongoing trust charges.
Shares admitted to trading on a recognised stock exchange but not “listed” (e.g., AIM-style shares on overseas markets) will only qualify for 50% relief, not 100%.
Transitional and anti-fragmentation rules apply to gifts and trusts from 30 October 2024 onwards. These rules explain how the new allowances interact with PETs, chargeable lifetime transfers and trusts.
One modest mitigant: from 6 April 2026 the ability to pay IHT by 10 annual instalments, interest-free, will be extended to all property eligible for APR/BPR – helpful, but it doesn’t remove the main tax charge.

Why these changes threaten family ownership

Under current rules, trading businesses and working farms often pass between generations without IHT where 100% BPR/APR applies.

From 2026, any value above the £1m allowance will be taxed on half of that value – which can still mean a substantial cash bill on death or for trust charges. That liquidity strain can force:

Sale of a minority stake to outside investors (diluting family control).
Sale or mortgage of core assets (land, plant, premises) to fund the tax.
“Sub-optimal” restructures done in haste that weaken long-term stability.

Industry voices, such as FBUK, have raised concerns about these risks.

LLPs as a countermeasure: what they let you do

An LLP is a separate legal entity with the flexibility of a partnership. For IHT, HMRC “looks through” LLPs and generally treats members like partners for BPR/APR purposes. Importantly, an LLP interest is treated as an interest in underlying assets, rather than just a “chose in action”. This gives real power for reliefs and continuity planning.

How an LLP helps in practice

1.Transfer assets in and allocate rights separately

Trading assets (and, where appropriate, farmland/plant) can be introduced into a family LLP. Membership interests can then be split into three strands:

Capital (who ultimately owns the underlying value),
Income (who receives ongoing profits), and
Voting/management (who runs the show)

This fine-grained tailoring is a hallmark of partnerships/LLPs and is usually easier than setting up multiple company share classes with bespoke articles/shareholders’ agreements.

2. Succession by slices, over time
LLP interests can be gifted or rebalanced between generations in stages (subject to anti-avoidance and valuation), allowing families to use the £1m 100%-relief band strategically across lifetime transfers and at death, while controlling who holds capital versus votes. (The new rules also explain how the £1m is allocated chronologically across lifetime transfers and the estate.)

3. Preserving BPR/APR character
Because HMRC treats LLP members like partners, periods of ownership for BPR/APR can continue unbroken when a partnership converts into an LLP. This clarity is especial useful when proving that assets qualify for relief.

4. Operational flexibility
Partnership/LLP agreements make it straightforward to adjust profit shares or voting without the complexity and formality of Company law. This agility is particularly helpful during the 2024–26 transition as families stage transfers to optimise the new allowance.

5. Important caveat: LLPs must run a genuine trading business. If the LLP’s dominant activity is holding investments (e.g., property letting), BPR fails. HMRC’s manuals give explicit examples of this risk (e.g., premises held in an LLP that only holds investments won’t qualify). Careful structuring is essential.

Why LLP and not a limited company?

Both LLPs and companies offer liability protection and can support succession. But in the BPR/APR + family-governance context, LLPs bring specific advantages:

Flexibility of entitlements: LLPs allow capital, income and votes to be separated easily in the agreement. Companies can achieve this via alphabet shares and different rights, but variations are less fluid and bring formalities and valuation/reporting hurdles.
IHT treatment: HMRC’s look-through means LLP members are treated as owning the underlying assets – unlike company’s shareholders, who just own shares in the company.
Avoiding investment-company traps: HMRC’s manual highlights situations where holding investments in an LLP can taint relief (so you design around that). By contrast, a company that drifts towards an investment business can also lose relief; but using an LLP can make it clearer when assets are used in the trade versus held as investments.
Introducing assets: Transferring land into an LLP uses partnership-specific SDLT rules (FA 2003 Sch 15), which can sometimes allow more efficient asset transfers than the standard company rules (though anti-avoidance rules apply).

Reality check on taxes when restructuring

SDLT: Land contributions to an LLP and later changes in shares can still trigger SDLT under Sch 15, often on market value proportions. Careful modelling is essential.
CGT: Transfers to a company may qualify for s.162 incorporation relief (deferring gains into shares), but conditions must be met and it may not align with your governance aims. LLP transfers do not use s.162 as there is no incorporation.

Design principles for a robust LLP solution

1. Keep it trading
Document and evidence that the LLP’s main activity is a trade (e.g., farming operations, manufacturing, services). Avoid structures where the LLP is essentially an asset-holding/investment wrapper, which risks failing BPR.

2. Match assets to use
Where land, buildings, plant and machinery are introduced, ensure they are used in the LLP’s business (or in a qualifying related structure) so they are not treated as excepted/investment assets. HMRC guidance links APR/BPR with partnership occupation and terms; keep formal occupation/tenancy documentation clear and up to date.

3. Engineer capital, income and voting track
Use the LLP agreement to decouple:

senior generation can retain voting rights (stability),
next generation can acquire income entitlements (succession and fairness), and
capital can move in stages to use the £1m 100% band first, then the 50% zone.

4. Map the new £1m allowance carefully
The new regime allocates the £1m chronologically across lifetime transfers and death. Plan your gift schedule accordingly, especially for transfers made between 30 Oct 2024 and 6 Apr 2026.

5. Model SDLT and CGT upfront
Work through FA 2003 Sch 15 mechanics for asset introductions and any retirements/admissions. If incorporation to a company is considered as an alternative, test s.162 outcomes and compare to the LLP’s governance flexibility.

6. Plan liquidity even with instalments
The extended IHT 10-year, interest-free instalment option from 2026 helps but doesn’t remove the need for cash. Blend LLP planning with life cover, buy-sell/option arrangements, and a staged gifting.

When a limited company may still be right

A company may still be preferable where:

External investors need equity;
Employee share schemes are required;
Corporation tax and retained-profit strategies dominate.

Companies can also use alphabet shares for different dividends and votes. But for family control, BPR/APR-focused planning, and smooth intra-family transfers, an LLP is often the cleaner, faster tool.

Bottom Line

From 6 April 2026, many family businesses and farms will face new IHT liabilities even though their businesses remain unchanged.

A well- structured family LLP can reduce the impact by:

Allowing staged succession that optimises the £1m/50% relief blend,
Preserving trading status for BPR/APR,
Separating capital/income/votes to keep control where it’s needed.

The structure is not a “silver bullet”: it must be trading-led, asset-use must be clearly documented, and SDLT/CGT implications must be modelled carefully.

We offer a free 20-minute consultation to discuss your circumstances and explain how we could help. There is no obligation to proceed further following the call, and you will come away with a plan for your next steps.

📧 Email us at wewillhelp@jonathanlea.net
📞 Call our expert team on 01444 708640

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This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.