From April 2026, the rules on inheritance tax (IHT) relief for UK business assets will change.
- Each person will receive a £1m allowance on qualifying business assets.
- Business assets above this allowance will be taxed at a reduced rate of 20% (rather than 40%).
- Unlike other IHT allowances, this allowance is not transferable between spouses – if it isn’t used, it’s lost.
IHT is payable on all UK assets, regardless of your nationality or domicile, subject to certain exemptions. This includes UK property and shares and investments in other UK companies, so the new rules may affect some of our international clients as the changes could have a significant impact on cross-border estate planning and tax exposure.
Here is a quick overview of how the changes could affect your planning:
- Leaving business assets directly to your spouse on death may waste your £1m allowance. A trust or gift to children could be more tax-efficient (while still protecting your spouse).
- If your spouse doesn’t have their own business, you can take advantage of their £1m allowance by gifting a share to them in your lifetime. Your spouse would need to hold the gift for 2 years to qualify for their own relief, so life cover might be worth considering in the meantime.
- If the total value of your estate, including any business assets, is above £2 million, your entitlement to the residence nil rate band (an additional inheritance tax allowance when leaving your home to direct descendants) begins to taper away. This makes reviewing your will especially important to ensure the allowance is not lost.
- From April 2027 your taxable estate will include your pension(s), making it even more likely your estate will be above £2 million.
- Trusts can provide flexibility and protection if your business changes (e.g. sale or restructure).
- Acting before April 2026 may allow larger gifts to be made with the chance they fall out of account completely if you survive 7 years.
- It is important to act quickly as you will need an accurate valuation of anything gifted and specialist valuers are getting booked up.
These changes create both risks and opportunities. Reviewing your estate and succession planning now could help preserve your £1m allowance and save your family significant inheritance tax in the future.
Contact our head of private client, Miriam Spero at ms@branchaustinmccormick.com today, to explore the best options for your business and loved ones.