What Every Business Owner Needs to Know
Future-Proofing Your Legacy with Smart Planning
Imagine spending your life building a successful business, only for a significant portion of it to be eroded by tax after your passing. For many business owners, the upcoming changes to Business Property Relief (BPR) could mean exactly that—unless you’re prepared.
From April 2026, the rules surrounding inheritance tax (IHT) relief on business assets are set to change dramatically. But while the headlines speak of restrictions, a closer look reveals new opportunities—especially for those who act strategically. This article dives deep into the technical side of the proposed reforms, and more importantly, what they mean for your legacy.
Understanding the Proposed Changes
From 6 April 2026, the government plans to cap the amount of business assets that can qualify for 100% relief under BPR and Agricultural Property Relief (APR) at £1 million. Assets above this threshold will receive only 50% relief, leaving them exposed to a 20% tax rate—far more than the total relief currently available.
But Here's the Silver Lining:
The £1M cap will reset every seven years, meaning that business owners can potentially benefit from multiple allowances over time through strategic lifetime gifting.
Core Planning Strategies for Business Owners
- Do Nothing (For Now)
For some, the simplest strategy might seem to be taking no action—retaining ownership until death. This offers:
- Continued control over the business
- Ongoing access to income (e.g., dividends)
- CGT uplift on death for business assets
However, from April 2026:
- Only £1M of assets will be fully exempt from IHT
- Excess will attract 20% tax, unless offset by the nil rate band
- The £1M allowance is not transferable to a spouse, potentially doubling the tax exposure for married couples
💡 Tip: Consider restructuring your will to leave business assets directly to children and non-business assets to your spouse.
- Make Outright Gifts During Lifetime
Gifting business assets now—or soon—can reduce the value of your taxable estate while taking advantage of the rolling £1M allowance.
- Gifts that survive 7 years are fully exempt
- Failed gifts (PETs) made between Oct 2024 and April 2026 still qualify for the new £1M limit
- Taper relief may reduce tax on gifts made more than 3 years before death
🧠 Think ahead: Each seven-year cycle offers a new bite at the £1M apple.
📉 Drawbacks:
- You lose control and a potential income stream
- CGT applies on the gift, though holdover relief can defer the gain
💼 Business succession planning and early pension contributions can offset income and control concerns.
- Use Trusts to Combine Control with Tax Efficiency
Gifting business assets into a discretionary trust can retain some control while taking advantage of the £1M allowance.
- Trusts can receive up to £1M (plus any nil rate band) every 7 years with no upfront IHT
- From 2026, BPR assets in trusts over the limit will be subject to a 6% charge at 10-year intervals (or 3% with 50% relief)
🏛️ Transitional rules apply:
- Trusts created before 30 Oct 2024 may each get their own £1M allowance
- After that, the £1M allowance will be shared across newer trusts, in creation order
⚠️ Creating multiple trusts won’t offer multiple allowances under the new regime—plan carefully!
- Protect Against the Unknown
Where large gifts or retained assets might trigger future tax:
- Short-term protection policies can cover the risk of PETs failing
- Whole of life insurance in trust can help cover additional IHT
📌 This is especially relevant if the business is the owner’s pension or essential to dependants’ financial security.
Special Considerations for AIM Shares & Investment Schemes
While private company shares benefit fully from the £1M relief cap, AIM shares will only qualify for 50% relief going forward. Also:
- Asset-backed Business Relief schemes aren’t explicitly excluded, but due diligence and liquidity planning are key
📊 The investment landscape may shift—review your portfolios and schemes regularly.
Key Takeaways for Business Owners:
- The £1M cap resets every 7 years – this opens doors for strategic lifetime gifting
- Trusts can offer control, but must be timed right to avoid losing the benefit
- Doing nothing could increase IHT exposure—but in certain scenarios, it still makes sense
- Early action ensures flexibility and preserves more of your business wealth for the next generation
Looking Ahead
These proposals mark a shift in the government’s attitude toward business tax relief—less about blanket exemption, more about active planning. While the final legislation is still pending, the direction of travel is clear. If you’re a business owner looking to protect your legacy, the time to act is now.
At Wills Tax & TrustsA New Ear Ltd, we help business owners navigate the complexities of succession and IHT. Whether you need to draft a new will, explore trusts, or model different inheritance scenarios, our expert advisers are ready to guide you every step of the way.
🕰️ The £1M clock starts ticking soon. Let’s make sure you get the most from it.
Don’t wait for a life-altering event to prompt you into action – check out how well your family is protected by viewing our free video TODAY!
Ray Best
Like his academic development, writing came late to Ray. He has written several published works, “Inheritance Tax Planning – My Way” and “Shareholder Protection & Partnership Protection” and has had four feature articles published in Tax Adviser magazine, but the publication he is most noted for is the joint collaboration with Tony Granger “Inheritance Tax Simplified”.