How will the changes to Business Property Relief affect your Inheritance Tax bill?
If you hold shares in your trading company or an interest in a partnership or sole trader, from 6 April 2026 you are likely to pay 20% inheritance tax on the value of your holding or interest above £1m. Why? Because of the changes to Business Property Relief announced in the Autumn Budget.
Craig Simpson, Tax Partner at Bates Weston, explains the changes and the actions you can consider taking as a result in his latest article.
The impact of changes to Business Property Relief on business owners
The Budget 2024 was a huge shift in political thinking around the taxation of privately owned businesses on death. Much has been made in the press of the impact on farmers but not so much on the impact for trading businesses generally, with the potential impact on the latter being far greater.
Since the early 90’s most shares in trading business have been protected from 40% Inheritance Tax (IHT) by the availability of 100% Business Property Relief (BPR). From 6 April 2026 that will all change with the rate of BPR reducing to 100% on the first £1m of value and 50% relief thereafter. Put simply a rate of 20% IHT on business property. The most common forms of business property are privately held shares in a trading company or an interest in a partnership or sole trader.
Up until now the political thinking has been that there is little to be gained from putting private businesses at risk of failure from the death of a shareholder. Such an event could happen quite unexpectedly and if the individual has not protected their own position through their Will with spousal planning or they are unmarried a big IHT bill could land with no cash to pay it.
The problem with private company shares is that they are not a liquid asset and so either the IHT bill has to be met elsewhere in the estate or the shares sold. The result, in some cases, will be the failure of businesses and the loss of jobs. It is hard to fathom the political thinking behind such a move. But we are where we are and must take action to plan. A Corporate Will plan is more essential than ever.
What approaches can be taken to avoid putting a business at risk on the death of an owner?
- Deal with succession sooner, passing the shares down a generation whilst in good health and survive 7 years
- Plan for the impact of a sudden death to ensure the company is not put at risk.
Ask the questions:
• What is the potential IHT exposure?
• How are shares dealt with on death in the Wills of the individuals?
• How will the estate realise the value of the shares?
• Insuring against the IHT. Shareholder protection insurance is now an essential tool. - Plan on using a trust before 1 April 2026. 100% BPR applies for gifts of qualifying shares to trust up 1 April 2026. Although anti-forestalling rules exist where the transferor dies after 1 April 2026 and within 7 years of the gift to recalculate the IHT under the new rules.
- Do nothing and just pay the tax when it arrives. Currently HMRC allow IHT to be paid off over 10 years. This is not an option many will want to take.
Take action now on Business Property Relief and Inheritance Tax
This change cannot be ignored. Every privately owned company in the land needs to consider how this potentially lethal tax cost is managed. Whilst much attention has rightly been placed on farming, the bigger picture is the whole of the private business sector which employs thousands of people and drives economic growth.
Please contact us if you would like to discuss your circumstances.
As always, you are reminded that this article is generic in nature and you should take no action based upon it without consulting your professional advisor.
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