Inheritance Tax Planning for Company Directors

The April 2026 Business Property Relief changes - what directors need to know

Until April 2026, Business Property Relief (BPR) provided 100% inheritance tax relief on qualifying business assets - trading company shares, partnership interests and certain AIM holdings - with no upper limit. For many director-shareholders, BPR was the single most powerful IHT shelter in the system.

That unlimited relief is gone. From April 2026, BPR and Agricultural Property Relief are capped at £1m combined for 100% relief. Above the cap, only 50% relief applies - an effective 20% IHT charge on assets that, until very recently, were entirely free of inheritance tax.

A trading business worth £3m, previously free of IHT under BPR, now carries an effective charge on the £2m sitting above the cap. The arithmetic for director-shareholders has changed materially. Planning now requires a combination of lifetime transfers, share restructuring, shareholder-protection insurance and, in some cases, corporate restructuring to make full use of the available relief across multiple shareholders.

The April 2027 pension changes - second pressure on director estates

From 6 April 2027, unused pension assets are included in the taxable estate for the first time. For directors who have used pension contributions as a tax-efficient route to extract profit from a business - typically through employer contributions to a SIPP or SSAS - this represents a second, parallel increase in IHT exposure.

For many directors, the combined effect is significant: the BPR cap since April 2026, plus pension IHT from April 2027. The total IHT liability on a typical director estate has increased materially over the last twelve months and will increase further. Read the detailed pension change article →

Director loan accounts and inheritance tax

Director loan accounts have a specific inheritance tax treatment that many directors are unaware of. A loan owed by the company to the director forms part of the director's estate on death - it is an asset and is taxed at 40% above the available nil-rate bands.

The structure and timing of repayments, the use of dividend planning to draw down the loan, and the position of the loan on death all have IHT implications that should be planned rather than left to chance.

Shareholder protection and keyman insurance in the estate

Life insurance held personally - including most shareholder-protection and keyman cover taken out by directors - forms part of the estate on death and adds to the IHT calculation.

Writing the policy in trust removes it entirely. The payout goes directly to the named beneficiaries (often the surviving shareholders, to fund a buy-out) without passing through the estate and without inheritance tax. It is a straightforward but frequently missed planning point for directors with significant cover in place.

Business succession and the estate plan

The succession plan and the estate plan must work together. The timing of a business sale relative to the wider estate planning can significantly affect the inheritance tax payable on the sale proceeds - particularly under the new BPR rules, where capital recovered as cash no longer benefits from any BPR shelter at all.

We work with directors on the intersection of business and estate planning - coordinating the sale or transition of business interests with trust structures, Will arrangements and lifetime gifting so the eventual outcome reflects what was actually intended.