Family Business Succession & Inheritance Tax
The business you spent forty years building may be worth less to leave than to sell.
The £1 million cap on Business Property Relief changes the calculus of family business succession. For the first time in decades, the tax-free inheritance route has a ceiling.
The real problem
For decades, shares in a qualifying unquoted trading company have passed at death with 100% Business Property Relief — no IHT, provided the two-year ownership rule was met and the company qualified.
From 6 April 2026, that 100% relief is capped at £1 million per person (shared with Agricultural Property Relief). Everything above attracts only 50% relief, meaning an effective 20% IHT rate on the excess.
On a family business worth £4 million passing on death, £3 million falls above the cap. IHT liability: £600,000. Payable in ten annual instalments — from the company's cash flow, from the family's savings, or from a distressed sale of shares.
Many family businesses are worth far more than £1 million. Almost none are prepared for this.
What's changed
The Autumn 2024 Budget introduced the cap. It applies to deaths and chargeable transfers on or after 6 April 2026.
The cap is combined for BPR and APR — a farmer who runs a diversified trading business shares one £1m cap between the two.
Lifetime gifts of qualifying business assets, if the donor survives seven years, still escape the cap under standard PET rules. That is the planning window, and it closes with every month that passes.
What this looks like in practice
A family engineering business in South Yorkshire, second-generation, worth around £4m. Founder still owns 100% of the shares, planning to leave them equally to two children who both work in the business.
Under the current rules: 100% BPR, zero IHT on the shares.
Under the post-April-2026 rules: £1m at 100% relief, £3m at 50% relief — an £600,000 IHT liability payable over ten years. The business would need to distribute an additional £100k or more per year, pre-tax, to fund the instalments. In a lean year, that pressure is severe.
With planning: gradual gifting of shares to the next generation now (starting the seven-year clock), consideration of a family investment company or trust structure, and life cover written into trust to fund the residual liability.
Real Story
The Sheffield business the family thought was protected
A profitable engineering firm, three siblings on the board, and the succession plan the founder assumed was locked in. What actually happened.
Read the storyWhere you live matters less than you'd think
HMRC applies the same rules whether the business is in Devon or Durham. What varies from one region to the next is asset value and family shape, not the tax code.
We work nationally by video call. Documents are signed remotely or couriered when wet signatures are needed. Almost every client we've helped with this problem in the last twelve months has never set foot in our office — and none of them received worse advice for it.
The local estate planner you were referred to may or may not have handled this specific situation before. The right question is not "are they nearby?" but "have they done this ten times?"
What we'd actually do
- 1
Understand the estate
A short, structured conversation about what you own, where it sits, and who is meant to receive it. No jargon and no product pitch. This alone often reveals the problem.
- 2
Estimate the potential exposure
We estimate the potential exposure — including the changes coming in 2026 and 2027 — and identify which areas need legal drafting, regulated advice, or tax input. You see the shape of the problem, not an assumption.
- 3
Design the plan in the right order
We tell you which two or three decisions move the needle, and which are decoration. Most estates need three or four things done properly, not everything.
- 4
Put it in place and review
Documents drafted, structures set up, life cover written into trust where relevant, and a review schedule so the plan tracks your life instead of gathering dust.
Common questions
Does every unquoted company qualify for BPR?
No. The company must be a trading company (not 'wholly or mainly' an investment company). Property investment companies, share-portfolio companies and some hybrid businesses fail this test. If in doubt, get it checked before you plan around it.
What about AIM-listed shares?
Many AIM shares qualified for BPR at 100%. From April 2026 they qualify at 50% only, regardless of the £1m cap. This is a separate change and it affects a great many portfolios.
Can we start gifting shares now?
Yes. Gifts of qualifying business shares can qualify as PETs and, if the donor survives seven years, fall outside the estate. The gift itself is normally free of Capital Gains Tax (holdover relief) and free of IHT (BPR at the time of gift). Do it properly with advice — the paperwork matters.
Does a family trust help?
Sometimes. Settling qualifying shares into a discretionary trust can shelter future growth from the estate. There are entry, exit and periodic charges to consider. It's a modelling exercise, not a default answer.
Two ways forward — pick the right lane
Some of what this page covers is drafted and delivered by IMS. Some needs a regulated adviser. Use the CTA that matches what you're actually asking for.
Regulatory notice. Inheritance Made Simple is not authorised or regulated by the Financial Conduct Authority. Where clients require regulated investment or pension advice, introductions are made to independently FCA-regulated advisers.
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