Inheritance Tax changes underline importance of business succession planning
The 2024 Autumn Budget introduced significant changes to two of the key Inheritance Tax (IHT) reliefs with effect from 6 April 2026, meaning many more will be brought into scope and should review their current and potential assets and plan now to minimise the tax impact in the future. Despite strong lobbying from the rural sector in particular, the Government made no change or softening in the 2025 Spring Statement.
What’s changing?
Agricultural property relief (APR) and Business Property Relief (BPR) will change so that, rather than the current unlimited levels of relief on qualifying disposals, 100% relief will only be available on the first £1m of value, with anything beyond that only receiving 50% relief. Additionally, relief for Alternative Investment Market (AIM) shares will be restricted to 50%. Businesses need think carefully before gifting shares.
While it will still be important to ensure that you can benefit from these important reliefs, those who had assumed that no IHT would be payable will have to take advice to consider how to mitigate the potential tax charge, particularly where their estate will not have sufficient liquidity to pay the tax.
Similarly, it was also announced that there would be changes to the inclusion of pensions in estates for inheritance tax purposes. From 6 April 2027, any unused pension savings and death benefits may be included within the value of a person’s estate for inheritance tax purposes. For many people, these changes to tax on assets could mean that their estate exceeds their nil rate band (NRB) for the first time. This will lead to more business assets being susceptible to IHT.
Importance of planning
Just as a business plan is used to create, fund, run and expand an organisation, a strategy needs to be put in place to enable succession. In our experience, when a business is a key component of family wealth the owner usually has a strong desire to preserve it in one form or another. As such, planning ahead is a key element and is essential when considering passing on management and ownership to your children or other family members.
The current state of ownership succession planning among family businesses is decidedly mixed. About two-thirds of family business owners report a good understanding of the amount of estate taxes due upon their deaths, but about one in five have no estate planning at all. More than one in three junior generation family business members have no knowledge of their senior generation’s transfer plans.
The ownership succession planning issues that you should look to address because they are the most common areas of contention or omission are:
- Overlooking important details when tax or estate planning
- Planning without taking into account the current legislative landscape
- The need to create a 5-10 year plan to see you into retirement and a successful business exit whether sale, liquidation or passing on to children.
- Leaving the business to the surviving spouse
- The challenge of treating children equitably
The changes to inheritance tax and pension rules, along with the complexities of succession planning, highlight the importance of proactive estate and business planning. With careful preparation, you can navigate these challenges and ensure a smooth transition for both your wealth and your business
We are here to help
If you’re considering succession planning, or if you’d like to better understand how these changes might affect your estate, now is the time to seek expert advice. Our team is here to help you explore the best strategies for protecting your legacy and securing your financial future. Don’t leave these important decisions to chance.
Our sister company, Azets Wealth Management, is also on hand to support you.
