Changes to Inheritance Tax (IHT) set to take effect in April 2026 will materially reduce the protection previously afforded to many family-run businesses.
Business Property Relief (BPR), long used to shelter qualifying trading assets from IHT, will be capped and that cap could turn a tidy succession plan into a significant tax bill unless you act now.
We want to help you understand the ways your estate might be impacted and the best way to manage the upcoming changes.
What is changing?
Under the new rules, only the first £1 million of qualifying business assets per individual will continue to attract 100 per cent BPR.
Any value above that threshold will receive just 50 per cent relief, meaning the standard 40 per cent IHT rate will apply, which is effectively a 20 per cent charge on the excess.
The cap sits with the individual, and separately with each trust, and is not transferable between spouses.
Any attempts to multiply the allowance by creating multiple trusts will be curtailed by anti-avoidance measures.
This means that the protection of substantial family businesses is being narrowed in a single, operational change that takes effect from April 2026.
Should family firms be worried?
Many family businesses comfortably exceed £1 million once you include property, retained profits and working capital.
Historically, BPR has allowed owners to pass trading businesses to the next generation without a large IHT bill.
The new cap means that where previously a sale or inheritance might have passed tax-free, the same structure could now trigger a sizeable liability.
This means that it is now worth reconsidering your existing structure to ensure that it remains as tax-efficient as you set it up to be.
How can the changes be managed?
As with all changes to IHT, it is imperative that you approach the situation as calmly as possible to ensure that you find the best solution for your individual circumstances.
You should review your ownership structure and the make-up of the business balance sheet.
Take the time to identify assets that do and do not qualify for BPR, such as investment property, surplus cash, or non-trading holdings can erode relief and may be candidates for restructuring.
It may be necessary to review shareholder allocations and possibly spread ownership across family members.
It would be best to seek professional advice before making these changes, as the rules can be complicated and timing is often important.
Even if you have no plans to retire or exit the business in the near future, you should take the time to succession plan.
Alongside your family, you should review ownership structures to see whether shares can be distributed among family members or held in trust.
It is worth remembering that transfers before April 2026 may allow access to more than one, £1 million allowance, but professional guidance is necessary to avoid unintended tax consequences.
We can help you to understand your potential liabilities, but we do advise that you review your balance sheet thoroughly, as this helps you identify and remove assets that do not qualify for relief.
When paired with planning for liquidity, you can ensure beneficiaries have funds available to pay any tax without needing to sell trading assets.
Our expert team can give you advice and guidance on managing your structure to avoid increasing your IHT bill.
For a full range of IHT support, speak to our team today!
