Planning for death isn't something anyone looks forward to, but it's an inevitable reality that must be faced. For business owners this planning becomes even more crucial as it ensures that their families can continue benefiting from the success of the business for years to come.
The 2024 Autumn Budget introduced significant changes to Inheritance Tax (IHT), which have raised concerns for business owners. Notably, the government announced changes to Business Property Relief (BPR) which in the past has allowed most business owners to pass down their company tax-free to their successors. Following the change, it may be a more practical option for business owners nearing retirement to consider selling their business and securing a lump sum as part of their retirement plan.
What are the Inheritance Tax Changes
For many years, individuals could transfer their business to their successors free of tax liabilities thanks to Business Property Relief which ensured that qualifying companies would be exempt from costly inheritance tax bills. Starting in April 2026, Business Property Relief will change and only the first £1 million worth of assets can be passed on tax-free. Any assets after the initial £1 million will only be eligible for 50% relief.
What does it mean for you?
These upcoming changes make it more crucial than ever to plan ahead to ensure that your family can fully benefit from your business after your passing, rather than being burdened with overwhelming tax liabilities. Without proper planning, they could face significant financial strain, which may force them into difficult decisions, such as selling valuable assets or even parting with the business itself.
After the many years you have dedicated to building and growing your business, it is only natural that you want it to remain in the right hands. For years, passing down a business to family members has been the favoured option, allowing your loved ones to continue benefiting from your hard work and dedication. It also gives you peace of mind, knowing that your business and legacy are in the right hands after you are gone.
However, from April 2026 onward, this process will no longer be as straightforward as it once was. The introduction of new inheritance tax implications means that, following your death, your family could be faced with unexpectedly large inheritance tax bills, creating financial pressure at an already difficult time. This is especially concerning for businesses whose value is tied up in physical assets, such as property or equipment, rather than in cash reserves. Without sufficient liquidity, your family may struggle to cover inheritance tax liabilities, potentially forcing them to sell parts of the business or take on debt just to meet their obligations.
Of course, this is not the future you want for your loved ones. Taking proactive steps now will allow you to secure your family’s financial stability, and ensure that your legacy is carried forward as you intended.
Selling your company – a more favourable option?
In previous years, passing down a business to the next generation was often the most favourable option, thanks to Business Property Relief (BPR). However, with the upcoming changes, business owners now need to reassess their estate and will planning strategies to ensure their families are not left with unexpected financial burdens after their passing.
Selling your company allows you to realise the full value of your business and take the money as a lump sum. When taking the money as a lump sum, it can be distributed more flexibly and efficiently to maximise and retain profits and minimise tax liabilities. By planning effectively, you can ensure that your wealth is passed on to your loved ones in the most tax-efficient manner possible.
Of course, it’s not that simple (nothing ever is!) and there are other taxes to consider such as Capital Gains Tax and Corporation Tax, but it may work out at a better rate and your family will get to benefit from your business without having to take on the responsibility and pressure of running the business themselves.
If selling is something you are considering, it is highly advisable to get professional advice to plan the best course of action. Each seller’s situation varies greatly; thus, giving an accurate picture of how much you will gain requires a clear understanding of current tax laws, personal circumstances and personal financial goals.
Selling your business and taking a lump sum has other benefits as well such as funding your retirement plans. After you’ve broken free from the 9-5 grind and the world is your oyster, you will want some cash to fund your adventures. Your business is likely your biggest asset, and selling it will give you lots of extra retirement income which you can use to travel, take up new hobbies and make lots of new memories.
Have an IFA practice and thinking of selling? We want to hear from you!
Reeves will work with you to design and implement a successful exit strategy that works for you and your clients. You’ll feel safe and secure knowing that your clients are receiving the best possible service and that your legacy is still intact.
If you’re interested in learning more, book a call here.
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