Geldards previous article on the changes to inheritance tax (“IHT”) and business property relief (“BPR”) concentrated on the proposals raised by the Chancellor in her Autumn 2024 Budget. In brief terms, BPR will be restricted to 100% relief on the first £1m of value in a privately owned company with the balance subject to IHT at an effective rate of tax of 20%. For an individual owning shares in a privately owned trading company worth £11m, their estate would face an additional IHT bill of £2m on the person’s death on or after 6 April 2026.

What has happened since October 2024?

We have continued to see protests by farmers regarding the “tractor tax” as farmers will be limited to the £1m limit for claim for BPR and agricultural property relief (“APR”). There has also been some publicity about the impact on family-owned companies and businesses of the changes to BPR. HMRC has published a very technical guidance note on the ability of existing trusts to claim BPR on their shareholdings in family companies. However, there has been no sign of any government climbdown or increase in the BPR relief above £1m.

This means that the changes to the IHT regime for family-owned companies will come into effect from 6 April 2026. We have seen some business owners “waking up” to the changes and enquiring about taking advice on their position. However, there appears to be a huge lack of knowledge about the changes and how the new regime will apply and, dare we say it, an “ostrich” mentality that the problem will just go away (we are sorry to say it won’t unless you are unfortunate enough to die before 6 April 2026).

We have had clients ask a number of questions, including:

• Will I escape the IHT charge if I leave the UK before 6 April 2026?
• Can I transfer my shares to an overseas company that I own to avoid the tax charge?
• Can I give the shares to my children but still retain control behind the scenes?

The short answer to all these questions is “No”. Carrying out these actions could lead to an even higher immediate tax charge than the 20% IHT charge the clients are trying to avoid, such as capital gains tax “exit” charges when transferring assets outside the UK.

What can business owners consider doing now?

There are a number of steps that business owners can take (and apologies if you recognise many of these points from our November 2024 article – not much has changed!):

1. Take professional advice and consider the whole of your and your family’s financial position. You cannot consider your business assets in isolation from any other assets you own, such as your home, other property (such as second homes), investment portfolios and, from April 2027 (another consequence of last autumn’s budget), pensions. Please do not rely on what “Geoff” from the golf club has told you (unless Geoff is a tax adviser and is prepared to stand behind his advice with decent professional indemnity cover).
2. Consider widening the share ownership by transferring shares to the next generation (or two). Elements of the planning from family investment companies can be used to create income and capital shares and different voting rights.
3. Consider transferring shares into a trust for the benefit of the next generation. The use of trusts can be worthwhile even without the 6 April 2026 changes if a sale of the company is contemplated. This is a complicated area and we are expecting anti-fragmentation rules to prevent the establishment of multiple trusts, each with their own £1m BPR tax-free allowance.
4. Take out life insurance cover to pay the IHT charge, particularly if you decide to make lifetime gifts of shares.
5. Sell the company and deal with the “problem” of having cash that does not qualify for any BPR so would be subject to a potential IHT charge of 40%. The sale option is great if you receive the vast majority of the cash on completion. It is not so good if the consideration is deferred over a number of years – the deferred consideration does not qualify for BPR. You may be able to give away the right to receive the deferred consideration.

Next steps

Do take steps to obtain professional advice. Sometimes, making that decision is the most difficult step. Our Private Client team always delights in telling us that 55% of adults in the UK do not have a Will. We are not sure if they should be so proud of this statistic! Amending your Will might be one of the simplest and most effective actions you can take to mitigate these new tax charges.

Please do get in touch, as the issue will not be going away.

Hopefully you will not be the potential client who told us that they have abandoned their plans to grow their business – they have decided they do not want to take the financial risk and deal with the stress only to see extra tax go to the Government on their death (unfortunately, the exact opposite of the growth aims of the Government).

If you require any assistance with tax planning, please contact the Geldards Corporate Team.

Disclaimer: do not take any steps based on this article without taking professional advice