Inheritance Tax Planning for Business Owners: What the 2026 Business Relief Changes Mean for You

The average Inheritance Tax bill for taxpaying estates has reached £231,000. For some business owners, the bill could be significantly much higher.

A business worth £50 million that might previously have passed on free from Inheritance Tax (IHT) could now leave a £9.5 million tax bill.

That’s because the rules around Business Relief changed from 6 April 2026.

For many owners of family and privately owned businesses, this means succession planning has become more important. Passing a business to the next generation could now create an IHT liability where little or none was previously expected.

So, what changed, and what can business owners do to prepare?

What Is Business Relief?

Business Relief can reduce the value of qualifying business assets when calculating Inheritance Tax.

Depending on the asset and circumstances, qualifying business property has historically benefited from relief of either 50% or 100%. This can include certain interests in a business and shares in qualifying unlisted companies.

And it’s a valuable relief. In 2023/24, 4,060 estates claimed Business Property Relief on £3.85 billion worth of assets. Almost half of that value was concentrated among just 109 estates, each claiming relief on more than £5 million of business assets.

However, the amount of qualifying agricultural and business property that can receive 100% relief is now restricted.

How Did Business Relief Change From April 2026?

From 6 April 2026, 100% Agricultural Property Relief and Business Relief are limited to a combined £2.5 million allowance.

Qualifying property above this allowance generally receives 50% relief. With the standard IHT death rate of 40%, this can result in an effective tax rate of up to 20% on the qualifying value above the allowance.

Any unused allowance can also be transferred to a surviving spouse or civil partner, potentially increasing the available 100% relief allowance to £5 million.

For owners of particularly valuable businesses, the difference can be significant.

How Much Inheritance Tax Could Business Owners Pay?

Take a shareholder who owns 100% of a qualifying private trading company worth £50 million.

Assuming the £2.5 million allowance is available, no spouse or civil partner exemption applies and the nil-rate band has already been used elsewhere, the calculation could look like this:

This creates another problem: where does the £9.5 million come from?

A business can have a high valuation without the owner or their beneficiaries having millions of pounds readily available to pay a tax bill.

Ways to Manage Inheritance Tax on a Business

There isn’t one solution that will suit every business owner. Your plans for the business, family circumstances and wider estate all need to be considered.

However, there are several options worth exploring.

Lifetime Gifts

Passing shares to family members during your lifetime can potentially reduce the value remaining in your estate.

A gift to an individual is generally a potentially exempt transfer. If you survive for seven years after making it, the gift will usually fall outside your estate for IHT purposes.

There can be Capital Gains Tax implications when shares are gifted, although relief may be available in some circumstances. This makes it important to consider both taxes before transferring shares.

Using a Trust

A trust may be useful if you want to transfer business assets but aren’t ready to give individual family members outright ownership.

However, transfers into discretionary trusts can themselves trigger IHT. The Business Relief reforms also mean that transferring qualifying business assets into trust may have different tax consequences than under the previous rules.

Professional advice is particularly important before taking this route.

Life Insurance

Life insurance can provide funds specifically to cover a future IHT liability.

For example, an appropriate policy written in trust may provide beneficiaries with funds to pay the tax without needing to sell business assets. The cost and level of cover should be reviewed as the business and potential IHT exposure change.

Build Liquidity Into Your Succession Plan

Another option is to make sure sufficient funds will be available outside the business.

Business owners should consider how beneficiaries would actually fund an IHT bill and whether doing so could affect the company’s future.

The company itself may sometimes provide liquidity through mechanisms such as purchasing shares from an estate, but these arrangements can have significant company law and tax implications.

Can Inheritance Tax Be Paid in Installments?

From 6 April 2026, IHT attributable to property qualifying for Business Relief can generally be paid in ten annual installments, interest-free where the relevant conditions are met.

This could significantly ease the immediate cash-flow pressure on beneficiaries.

However, installments don’t reduce the amount of tax owed. They simply spread the cost, so there still needs to be a longer-term plan for funding the liability.

Why Business Succession Planning Matters More Than Ever

Inheritance Tax shouldn’t be the only consideration when deciding what happens to your business.

Think about who you want to own it, whether family members want to take over, who will manage it and whether a future sale is more realistic.

Once you’ve decided, you can consider how lifetime gifts, trusts, insurance and other strategies might help manage the tax implications.

The main thing is to start early. As the value of a successful business grows, so can its potential IHT exposure.

If’d like expert guidance on Inheritance Tax and succession planning for your business, book a consultation or contact us today on 03300 88 66 86, or email [email protected].

About the author

Siddharth Agarwal
I am a Chartered Tax Advisor (OMB) and ACCA. I have 9+ years of experience in owner-managed business taxation issues, company reorganisations, property taxation, and succession planning. I also work with private clients on bespoke tax planning strategies for trusts, residence status, and non-residents. I aim to fulfil my professional duties towards my clients and keep them satisfied, my utmost priority. I believe in establishing and maintaining businesses and personal relationships as the key to mutual growth.