While there’s been a lot in the news about the effect of the changes to
Inheritance Tax (IHT) announced in the 2024 Autumn Budget on farmers, the impact on business owners has been less well publicised.
If you own an interest in a business worth more than £1 million then your exposure to Inheritance Tax (IHT) could increase from April next year.
The changes to Business Property Relief (BPR) and Agricultural Property Relief (APR), impact both trading businesses (including shareholders of trading companies) and farmers. From 6 April 2026 a new £1 million allowance will apply to the combined value of property that qualifies for 100% BPR or 100% APR or both. When the £1 million allowance has been exhausted, relief will apply at a lower rate of 50% to the combined value of qualifying agricultural and business property.
This means that any business with a value over £1m may therefore be liable for Inheritance Tax. For example, if you owned shares in an unquoted trading company worth £2.5m and have held those shares for more than two years prior to the date of death, you would previously have suffered no IHT where 100% Business Property Relief was available. From April 2026, 100% BPR will only be available on the first £1m. In this example, the remaining £1.5m would only qualify for 50% relief meaning that the Inheritance Tax due increases by £300k.
IHT efficient investment portfolios that invested in shares on the Alternative Investment Market (AIM) are also impacted. These shares currently qualify for 100% BPR but from April 2026 they will only qualify for 50% relief, making AIM investments less tax efficient.
The good news is that there is action that you can take to mitigate the potential impact of the changes.
The first thing to check is that you have a Will and that it remains tax efficient. If you have made what is commonly known as a ‘mirror will’, where everything is left to the surviving spouse on the first death this may no longer be tax efficient because the £1m APR/BPR lifetime allowance is not transferable to the surviving spouse on death. This could lead to scenarios where an estate loses out on relief worth £200k.
It's also important to review how any business assets are owned and to consider making use of transferring shares/assets to your spouse to ensure their £1m allowance is also utilised.
Finally, you may wish to consider accelerating your succession planning. The lifetime gifts of shares in your unquoted trading company to your children would be treated as potentially exempt transfers for IHT purposes. This means that after seven years the value transferred is fully outside your estates for IHT purposes.
Transfers of business assets into a Trust is also an option where the retention of control and asset protection are primary drivers. However, this is a complex area and would need careful planning as there are other considerations such as capital gains tax and business asset disposal relief to take into account.
Our tax and inheritance planning experts can review your particular situation and advise on how to minimise the impact of Inheritance Tax on your finances and maximise the amount available to leave to loved ones.
For further advice, please contact your
local Moore office.