Big changes are coming for family businesses regarding inheritance tax.
If you own a family business, here’s what’s changing and what you can do about it.
Why does it matter?
Inheritance tax (IHT) is set at 40% on anything you leave beyond the £325,000 threshold. This threshold increases to £650,000 if you pass your unused allowance to your spouse. There is also an extra £350,000 relief available for your main residence in certain cases. IHT does not represent a large portion of the Treasury’s tax revenue each year. However, it can be devastating for the families who must pay it. This is especially true when their life’s work is tied up in their business.
What’s changing?
Starting on April 6, 2026, the rules for passing company shares will change. Currently, you can pass shares in certain unlisted companies to your loved ones without paying inheritance tax if you have owned them for at least two years. This is thanks to Business Property Relief. However, this relief will be limited after next spring. The first £1 million in business assets will remain tax-free, but any amount exceeding that will only receive 50% relief. If your business is listed on the AIM index, you will not qualify for the £1 million exemption and will only receive half of the IHT exemption you previously received. From April 2026, you can settle any IHT bill on business property in ten interest-free annual instalments. It’s not a complete fix, but it does help cash flow.
What can I do now?
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Use the old rules while you can: If you transfer shares into a trust before 6 April 2026, you lock in today’s 100% relief, provided you survive another seven years. Waiting until after that date means any trust holdings over £1 million could face an immediate lifetime IHT charge, plus more if you die within seven years.
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Think about life insurance: Putting a life policy into trust can give your family cash to cover any IHT bill quickly, without it forming part of your estate.
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Spread your risk: Don’t keep all your wealth tied up in the business. To diversify, use ISAs, pensions (for you and your spouse), or even Venture Capital Trusts and EIS schemes.
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Review your will and plans regularly: Small tweaks in who owns what can make a big difference. It pays to check in on your arrangements each year, or whenever there’s a significant life change.
Inheritance tax and business relief can feel like a minefield. The sooner you get ahead of it, the more options you’ll have. If you’d like to explore how these changes affect you, schedule a free, no-obligation chat here. A guide on selecting a financial advisor is also available here.
The guide is for informational purposes only and is not a substitute for personalised financial advice. The content should not be relied upon in its entirety and shall not be deemed to be or constitute advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Individuals or companies should only act upon such information if they receive appropriate professional advice after thoroughly examining their particular situation.
We cannot accept responsibility for any loss due to acts or omissions taken regarding the content. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. Levels and bases of, and reliefs from, taxation are subject to change, and their value depends on the individual circumstances of the investor. The value of your investments can go down and up, and you may get back less than you invested. Tax laws and allowances are subject to change, and readers should consult with a qualified advisor for the most current information.
