Business owners will need to recalculate their inheritance tax (IHT) liabilities after the government scrapped rules that allowed business loans to be set off against the value of the owner's home.

The move, buried in the depths of the government's Budget briefing documents, could see many more estates falling into the IHT net.

A business is normally exempt from IHT through business property relief, whereas private property is subject to the charge. But under current rules, if a business loan has been secured against the owner's home, then the value of the property is reduced, which could bring the overall value of the estate below the IHT threshold.

The government said that it would legislate to close an IHT loophole that allows a deduction from the value of an estate for an outstanding debt regardless of whether or not the debts are paid after death, or how the borrowed funds have been used.

David Kilshaw, tax partner at KPMG said: 'This is a nasty shock for business owners. They will now have to budget for unexpected inheritance tax bills and they may be faced with a horrible choice -do their heirs sell the family home or does the business pay the tax?'

Many business owners could now face the prospect of their estate being valued above the IHT threshold, which has been frozen at £250,000 until at least 2017/18.