The Sheffield Business the Family Thought Was Protected

A precision-engineering firm in the north of Sheffield, second-generation. Turnover around £6m, healthy margins, a book of long-standing industrial clients. The founder, in his mid-seventies, owned 100% of the shares. Three adult children: two working in the business, one an accountant in London.

The succession plan, put together in 2019, was straightforward. On death, the shares would pass equally to the three children — with the two active in the business gradually buying out the third. Business Property Relief would apply at 100%, so no IHT on the shares themselves. Everything ran on that assumption.

October 2024: the Budget announces a £1m cap on the 100% rate of BPR from April 2026. The company's shares were, at the time, valued at around £4.2m. Under the new rules, £3.2m of value would fall above the cap, at 50% relief — an effective IHT rate of 20%, or £640,000.

The company had cash flow, but it didn't have £640,000 of surplus. Paying the tax in instalments would divert £75-90,000 a year of pre-tax profit away from reinvestment. That was the difference between hiring two apprentices a year and not.

Gifting of shares to the next generation should have started years earlier. Under the pre-April-2026 rules, gifts of qualifying business shares carry holdover relief for CGT and — if the donor survives seven years — fall outside the estate for IHT entirely. The seven-year clock is the whole game, and it needed to start ticking a decade before it did.

A restructuring into a family investment company or a trust could also have been considered — moving future growth out of the founder's estate while retaining control. This is more complex than a simple gift and needs proper modelling, but for a business likely to grow substantially, it can be transformative.

We modelled the position properly, then acted quickly — the announcement of the cap left roughly 18 months for lifetime action.

The founder made a substantial lifetime gift of shares to the two children active in the business, holding over the capital gain and starting the seven-year IHT clock. This moved £2.4m of value out of his estate under BPR-at-the-time-of-gift rules, before the April 2026 cap applied to lifetime transfers.

He also settled a smaller tranche of shares into a discretionary trust for the benefit of the wider family, with the same holdover and BPR treatment. The trust structure gave flexibility for future generations without concentrating ownership.

Life cover was put in place — written into a separate discretionary trust — to fund the IHT that would arise if he died within the seven-year period. A term of ten years, sized to the projected liability. The premium was funded from the company by way of an increased director's remuneration.

His will was rewritten to leave any remaining shares to a spousal bypass structure, using both nil-rate bands cleanly and giving the executors flexibility on how to unwind the position depending on the tax rules at the time of death.

For family businesses above roughly £1.5m in value, the £1m BPR cap changes what your succession plan is worth. If the plan was signed before October 2024, it needs a full review — not a tweak. The window to use the pre-cap lifetime gifting rules is open now and closes with each month that passes.