The £2.5 million cap on Business Property Relief: what it means for your practice

Business Property Relief has quietly shaped how dentists hold their practices for decades. A share in an unquoted trading company, or a sole trader's or partner's interest in the trade itself, passed on death with 100% relief from inheritance tax, however large the practice had grown. That changed on 6 April 2026. Business Property Relief and Agricultural Property Relief are now assessed together, and 100% relief is capped at the first £2.5 million of combined qualifying value per person. Anything above that line gets 50% relief, which is a 40% tax rate applied to half the excess — an effective 20% rate on the value over £2.5 million.

The cap itself has already moved once. It was first proposed at a flat £1 million in the Autumn 2024 Budget, then raised to £2.5 million when the government confirmed the final design on 23 December 2025. The higher figure is the one that took effect in April and is the one in force now.

Who this catches in a dental practice

• Incorporated practices. Shares in the dental company — a dental body corporate or an ordinary trading company run by one or more dentist-directors — are the asset the relief attaches to. A single-surgery company is rarely anywhere near £2.5 million. A group of three or four practices under one holding structure, or a company that has also bought its own freehold premises, can clear it comfortably.
• Sole traders and partnerships whose business assets — goodwill, equipment, a practice-owned building — are valued together on death. The same £2.5 million line applies, and it is shared with any agricultural property the same person owns, which matters if a dentist also owns farmland or a smallholding.
• Anyone who has already started gifting shares to an associate buying into the practice, or to a child joining the business, as part of a succession plan.
• Married couples and civil partners who have not reviewed how practice ownership and their Wills interact with an allowance that, unlike the old relief, now has a limit worth planning around.

What has not changed: the £2.5 million allowance belongs to the individual, not the practice. A sole owner uses their own £2.5 million; shares split between spouses each carry their own £2.5 million separately, which is the lever most practices have not yet used.

The trading test still comes first

The cap only applies to value that qualifies for relief in the first place, and the older, long-standing test for that has not softened. A company (or a sole trader's business) has to be "wholly or mainly" trading to get Business Property Relief at all — a holistic test, not a single numeric threshold, but one that weighs how much of the business's activity, assets, income and time is investment rather than trading. A dental company that lets out part of its building, or that has built up cash and investments well beyond what the practice plausibly needs for working capital and reinvestment, risks being treated as partly an investment business. That does not just shrink the relief to the new 50% rate; done badly enough, it removes relief on that value entirely, regardless of the £2.5 million allowance. Retained profits sitting in a dental company have always carried this risk; the new cap makes the consequence of getting the trading test wrong considerably more expensive, because there is no longer unlimited relief to fall back on.

A worked example: one incorporated practice, two outcomes

Take a dentist who incorporated a single practice fifteen years ago and has since grown it to three surgeries, keeping the freehold inside the trading company. On death, the company's shares are valued at £3.4 million — clinical goodwill, equipment, the building, less liabilities — and the company genuinely passes the trading test: the building houses the practice itself, and cash balances are modest relative to turnover. The figures are illustrative, but the shape is ordinary for a successful multi-surgery group.

Under the rules that applied before 6 April 2026, the full £3.4 million qualified for 100% relief. Inheritance tax on those shares: nil.

Under the rules in force now, the first £2.5 million still gets 100% relief — nil tax on that slice. The remaining £900,000 gets 50% relief, so £450,000 of it is chargeable. At the 40% death rate, that is £180,000 of inheritance tax that would not have been due the year before, on an estate where nothing else — the practice, the Will, the family — has changed at all.

The allowance does transfer to a spouse — eventually

As confirmed in the December 2025 announcement, any part of the £2.5 million allowance left unused on a first death transfers to a surviving spouse or civil partner, in the same way the nil-rate band already does. A couple can, between them, ultimately shelter up to £5 million of qualifying business and agricultural property. The practical catch is timing and documentation: the transferable amount is based on the proportion unused on the first death, has to be claimed on the second death, and depends on records of what was actually relieved the first time round. Relying on survivor transferability as the whole plan, rather than also looking at how shares are held while both spouses are alive, leaves the value exposed for however long it takes for the second death to occur — which, for a dentist still practising in their fifties, could be several decades.

Gifting shares now, under the new rules

A gift of practice shares made from 6 April 2026 onward is tested under the new rules outright: if the donor dies within seven years, the gift is assessed against the £2.5 million allowance using the value at the date of the gift, exactly as a gift at death would be. There is a narrower transitional rule covering gifts made between 30 October 2024 and 5 April 2026, which are tested under the old, uncapped rules unless the donor dies on or after 6 April 2026 and within seven years of the gift — in which case the new cap applies retrospectively to that gift. Anyone mid-way through bringing an associate into the business as a shareholder, or gifting shares to a child joining the practice, should have that gift's date and the donor's likely survival checked against the cap specifically, rather than assuming the arrangement already agreed still produces the tax outcome it was designed for.

What to do this week

1. Get a current valuation of the practice shares or business interest — not the figure from when the company was set up or last refinanced. Our practice valuation guide covers what actually drives the number.
2. Check the trading test honestly. If the company is sitting on cash well beyond working capital, or lets out part of its building, get that reviewed before it becomes a bigger problem than the cap itself.
3. If you're married or in a civil partnership, look at how practice ownership is split, not only at what the Will says. Splitting shares between spouses while both allowances are available can do more than waiting for survivor transferability.
4. If a share gift is already underway — an associate buy-in, a family succession — get the gift date and the donor's position checked against the new cap specifically.
5. Revisit the Will if it was drafted on the assumption that the practice passes free of tax regardless of size. Our incorporation workings and selling your practice guide are worth re-reading alongside it, since the structure that made sense for income tax while trading is not automatically the one that makes sense for inheritance tax on exit or death.

None of this means a typical single-surgery practice has a new problem — most sit well under £2.5 million and the position has not moved for them. It does mean that "the practice passes down tax-free" is no longer true by default for a successful group, and the gap between those two cases is exactly the £900,000 in the worked example above. If you are not certain which side of the line your practice falls on, or whether your Will and your share structure were built for the old rules, talk to us before the next valuation, gift or Will review happens without that question answered.