COMMENT
Senior associate Vicky Wylds of Buckles comments on upcoming changes to inheritance tax and business relief that will soon impact family businesses FAMILY MATTERS
he 2024 Autumn Budget announced important changes to the way family businesses can be passed down through generations without facing heavy inheritance tax (IHT) bills. Effective from 6 April 2026, these changes are set to shake up traditional approaches to handing over family businesses, making it essential for owners to understand what’s coming and how to prepare. One major change is the introduction of a £1 million limit on tax relief for business and agricultural property. At the moment, qualifying business assets can be passed on free of inheritance tax, which has allowed many family businesses to stay in the family without facing huge tax bills. But from 2026, this generous relief will only apply to the first £1 million worth of assets. Anything above this will only qualify for half of the usual tax relief. To put this into context, take a family business worth £4 million. Under the new rules, the first £1 million would be passed on tax-free. The remaining £3 million will only receive half the relief, meaning it is subject to inheritance tax of 20% (rather than the usual 40%), which equals a tax bill of £600,000. This means families who had previously expected to avoid inheritance tax on the whole business could now face a significant bill. Another important change affects some types of Alternative Investment Market (AIM) shares, particularly those in smaller, flexible companies traded on
specialist markets. At the moment, these shares also benefit from full tax relief. From 2026, however, this relief will drop to half, potentially leading to higher tax bills when passing on such investments. To stop people rushing to give away business assets before the rules change, the government has introduced a measure to target gifts made between 30 October 2024 and 5 April 2026. If the person giving away the assets dies within seven years and after 6 April 2026, the new rules will still apply, meaning the relief could be reduced or lost. So what can business owners do to prepare? It’s essential to review your will and estate plan to make sure they reflect these new changes and maximise available reliefs and exemptions. Passing on business assets during your lifetime might still be an option, especially if done well in advance, but it’s crucial to weigh this against the risk of losing control of the business or facing other taxes. Setting up a trust could also help manage the passing down of the business, especially under the new capped relief system. Another option is to take out life insurance to provide a financial cushion for any tax due when the business is passed on, which ensures continuity. These changes might seem daunting, but you can take steps to protect your family business. Getting professional advice can help you navigate the new rules, so your hard-earned legacy remains secure for future generations.
is a senior associate in the Private Client team at Buckles Solicitors LLP. buckles-law.co.uk Vicky Wylds “It’s essential to review your will and estate plan to make sure they reflect these new changes and maximise available reliefs”
ISSUE 1 | BUSINESS EDITION | 15
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