Inheritance tax changes: New implications for businesses and their owners

From 6 April 2026, business owners now need to navigate the changes to Business Property Relief (BPR) and their exposure to Inheritance Tax (IHT). Dan Hartland consider the issues these changes raise for businesses and their owners and approaches to mitigate their impact. 

What is the issue? 

Up until 6th April 2026 most trading businesses were fully or largely protected from IHT on a shareholder’s death due to the availability of 100% BPR. From 6th April 2026, while the BPR regime has largely remained intact, the rates have changed to 100% for the first £2.5m of value per person (this allowance being transferable between spouses) and 50% thereafter. In simple terms, this means that shareholdings qualifying for BPR that are valued above £2.5m per individual are subject to an effective IHT rate of 20%.  

To illustrate the impact, consider a privately held company worth £30m, owned by a single shareholder whose intention is to leave shares to their children. Under the new regime, their IHT exposure on those shares will have increased by £5.5m. Critically, the transfer of the shares to their children on death does not result in any cash to fund this additional liability. 

If the children wish to retain ownership of the company then the estate has two key options. The first is for the estate to fund the tax outright. In practice, this could materially impact the estate as assets earmarked for other legacies (which will also be subject to IHT) may need to be depleted or abandoned altogether. In more extreme cases, there may simply be insufficient assets to fund the IHT. This scenario is more common than many might expect, as a material part of many business owner’s personal wealth is tied up in their shareholdings. 

A second option is for the estate to elect to pay the tax over ten years in equal instalments with the company helping to fund the instalments through annual dividends paid out of its profits.  Where the shares qualify for BPR, the instalments can be paid interest free, which is good news.  However, once dividend tax and corporation tax have been accounted for, this would require the company to expend c£1.2m of pre-tax profits to fund the instalments each year for ten years.  

While this may assist with the cashflow of the estate, the overall cost to the business is material. Actions to mitigate the shareholders IHT liability are therefore not just a personal tax issue, but also a business issue given the obvious impact on the company’s ability to invest and grow. In our view, this is a matter that needs to be on the agenda of every CFO with a concentrated shareholder population.  

These challenges can be even more acute in other scenarios. The example above assumes a single shareholder. Significant minority shareholders may have a particular challenge if the company is unwilling or unable to help with funding. 

What can you do now? 

Business owners and their CFOs should ensure that they understand the issue that they may face and take key mitigating actions to protect their businesses.  We have set out five key areas below: 

1. Understand the exposure 

A simple exercise should be undertaken, with valuation input, to quantify a shareholder’s IHT exposure.  This will help you understand the issue and ensure any action is proportionate. 

2. Get the housekeeping right 

A company qualifying for BPR without restriction is not inevitable, and ensuring periodic reviews to maximise the value of this valuable relief is now particularly important. 50% relief is still a valuable relief and the loss of BPR also means the loss of the ability to pay the tax over ten years without interest. 

It is also striking how many business owners do not have up-to-date Wills. Thoughtful Will planning remains critical as it can potentially allow any IHT liability to be deferred through a spousal exemption, buying time for planning. It can also help ensure that both spouses use their £2.5m 100% BPR allowance (worth up to £500k each).  There may also be particular Will legacies which can no longer be met due to additional material IHT liabilities.  This may need thought and amendments to ensure intended legacies are met. 

For certain business owners, a combination of a good Will and life insurance may be a cost effective short-term solution to manage any exposure. 

3. Have a succession plan and set a clear timeline 

Succession can mean different things to different businesses. For some, it could involve the sale of the business to a third party, to management or to employees. Equally it may mean the exit of the current generation and the passing of the business to the next generation. 

The first step is identifying the option or options for your business and considering actions now that align with that strategy.  

Importantly, it is worth remembering that inheritance tax is still a tax paid by people that do not give their wealth away quickly enough. Wealth gifted away seven years before death is typically not subject to inheritance tax. The challenge with gifting is often balancing this with the retention of control over your business and ensuring you have access to sufficient wealth to meet your ongoing personal needs. Working with a specialist adviser in this area is, therefore, incredibly important to ensure that you understand the options available to you in the context of your likely overall succession plan and can balance these factors in a way that feels comfortable. This is how you will ensure you execute a good strategy sooner rather than later. 

4. Keep the plan under review 

Plans change for a variety of reasons, changing priorities, legislation, unexpected events.  It is important, therefore, that any succession plan is kept under review and is flexible enough to react to future events. 

5. Minority shareholders 

Where this is a wider class of shareholders, who may or may not be family members, additional complexities may arise. While the housekeeping points and succession plan remain crucial, it may be equally important to formalise what happens on a death. For example, should the company buyback the individual’s shares from their estate following a death and, if so, how might this be funded? In some cases, an insurance policy may provide an effective solution, but these need to be carefully structured and agreed in advance. 

Conclusion 

The new BPR regime has the potential to have a material impact on business owners and their businesses. With proper focus and attention, most businesses should be able take action to mitigate the impact to an acceptable level. Unlike the old regime, however, this is unlikely to happen by accident rather than design. 

This is not just a ‘personal tax’ issue. Our experience in advising business owners mitigate the impact of this change has shown us that inaction can result in the business itself needing to be a material part of the funding solution.  

For further information, get in touch with Dan Hartland.