The recent announcement of changes to Business Relief (BR) in last autumn’s Budget has raised concerns among business owners. With modifications to Inheritance Tax (IHT) relief on BR and Agricultural Relief (AR) set to take effect from April 2026, many individuals are reassessing their estate planning strategies.
Although the legislation is yet to be finalised and a consultation regarding its application to trusts is imminent, the proposed changes will limit the amount of relief available. Under the new framework, the first £1 million of qualifying assets will be exempt from IHT, while any excess will receive only 50% relief—down from the current 100%. Additionally, unlisted shares, including those on the AIM market, will also qualify for just 50% relief instead of full exemption.
A Time for Careful Consideration
Given these impending changes, some business owners are contemplating transferring their company shares to family members sooner rather than later to mitigate IHT liabilities. However, it is crucial to approach this decision with caution.
Rushed decisions could have unintended financial and operational consequences. Gifting shares should not be driven solely by tax considerations—owners should evaluate whether transferring shares aligns with their long-term business and personal objectives. If gifting shares was not previously a priority, the new tax rules alone should not dictate a change in strategy.
For instance, in family-run businesses, it is essential to assess whether the next generation is prepared to take control. Factors such as potential divorces, financial difficulties, or lack of experience could pose risks to the stability of the business. Additionally, business owners must consider their own financial needs—transferring shares may impact their income, capital security, or control over the company.
Exploring Alternative Solutions
Instead of gifting shares outright, alternative estate planning strategies should be explored. These may include:
- Trusts: Transferring shares into a trust can provide greater control over their distribution while potentially reducing IHT liabilities.
- Life Insurance: A well-structured life insurance policy can help cover IHT liabilities without relinquishing business assets.
- Asset Reallocation: Rather than transferring business shares, it may be more beneficial to gift simpler assets that do not generate income or qualify for IHT relief.
How We Can Help
Estate planning is more important than ever, especially with upcoming changes to inheritance tax and reliefs. Our specialist team at VPC Accountants has extensive experience in helping individuals and business owners efficiently manage their tax exposure. If you have concerns about how these changes may affect you or require guidance on managing your assets, please get in touch via the form below or contact your VPC Partner.
Disclaimer: The information provided in this article is for general guidance only and does not constitute financial or legal advice. Professional advice should be sought before making any decisions.
