Inheritance Tax Planning for Businesses in 2025/26: Navigating the changes.
· Posted on: July 10th 2025 · read
Recent reforms to Inheritance Tax and Capital Gains Tax mean that effective tax planning is now essential.
Our tax teams have seen increasing concerns from entrepreneurial and business owner clients about the Inheritance Tax reforms announced in the Autumn Budget in October 2024, how they can best handle the impact of the changes, and any tax planning that is needed before April 2026.
Changes to pensions will impact on many owner-managed and family-run businesses. You’ll also be affected if you are retired and/or planning succession, use trusts, draw dividend income, or have unused pensions.
In this article, we highlight common concerns raised about the reforms, and how these can be addressed with the right tax and wealth planning to ensure the legacy you’ve worked hard to build is protected for the next generation.
With the right tax and financial planning, you can ensure the legacy you’ve worked hard to build is protected for the next generation.
What was announced?
Key reforms to Inheritance Tax (IHT) were announced in the Autumn Budget 2024:
- Changes to Agricultural Property Relief (APR) and Business Property Relief (BPR).
- Inclusion of unused pensions within the scope of Inheritance Tax.
What’s changing and when?
Who will be affected?
OMB and family-owned businesses.
Individuals with trust arrangements in place.
Individuals with significant dividend income.
Individuals who are retired or close to retirement.
Key points to consider
- For all but the smallest businesses, doing nothing is likely to waste potential savings.
- Any transfer of shares will require robust valuation including consideration of minority interest discounts.
- Strong consideration should be given to insuring potential liabilities.
- Any planning needs to be cognisant of wider commercial and family factors and should involve a financial planner.
FAQs
Doing nothing would have been the preferred option before the changes announced in the Budget, as 100% BPR would have been available. Now however, for businesses worth over £1m, IHT is likely to apply.
The majority of wills will be set up to leave everything to the surviving spouse at the first death. This potentially wastes £1m of BPR resulting in an increased IHT liability of £200k, because unused BPR is non-transferable between spouses under the new rules.
The spousal exemption still applies, allowing transfer of assets to a spouse with no IHT. Transferring at least £1m worth of shares to a spouse will potentially save £200k in IHT by utilising both spouses BPR limits.
Consideration should be given to amending both wills to leave the first £1m of value in the business to children / trust, as this will preserve both spouses BPR limits regardless of order of death.
Transfer to trust will be a chargeable lifetime transfer (CLT) at a lifetime rate of 20%. However, BPR may be available to reduce the charges. Transfers made pre-April 2026 may benefit from unlimited BPR at 100%, thereafter the first £1m at 100% limit may apply.
While gifts made before April 2026 may qualify for full relief if the 7-year rule is met, a death after April 2026 and within the 7-year period could mean the gift falls under revised IHT rules. Given this uncertainty, a reducing life insurance policy written in trust may be appropriate to help cover any potential IHT liability.
Trusts are subject to a ten-year charge on the value of the trust property at a maximum of 6% (reduced to 3% by BPR at 50%).
There are several tax efficient ways to have children succeed into the business, including family buyouts. These options offer flexibility for current owners to realise some cash, whilst also gifting a percentage of the business.
From April 2027, pensions are expected to fall within the scope of Inheritance Tax (IHT), which may reduce their effectiveness for estate planning. This is particularly relevant for estates where the pension holder is over 75, as the pension fund could be subject to both IHT and income tax. Given the complexity of this area, it is important to seek professional advice tailored to your circumstances.
IHT Planning for Businesses in 2025-26
IHT Planning for Businesses in 2025 26
For further assistance
IHT reforms may be subject to further change, so we recommend reviewing your tax and wealth planning regularly, especially considering changing rules and personal circumstances, to ensure your plans remain tax-efficient and aligned with your financial goals.
Please contact your usual MHA tax adviser for more guidance on these changes and help in reviewing your tax plan. Alternatively, please contact your local office and we will be happy to assist you.
For help with your financial planning, please get in touch with our independent financial planners from our team at MHA Wealth.
This communication is for general information only, and is not intended to be individual investment advice, a recommendation, tax, or legal advice.
