Business Owners and Shareholders: Preparing for IHT Changes

Business owners and shareholders planning to gift shares to their children because of impending changes to inheritance tax (IHT) are urged to seek advice.

The Impact of Business Relief (BR) Changes

The announcement of changes to Business Relief (BR) in last Autumn’s Budget has caused some panic among those most likely impacted. Changes to the IHT relief available for assets qualifying for BR and Agricultural Relief (AR) are expected to come into force in April 2026.

Key Proposals and Expected Changes

Although the legislation has not yet been finalised and a consultation is imminent as to the application to trusts, the proposals cap the amount of relief available. This means the first £1 million of qualifying assets will be exempt from IHT and the rest will attract 50% relief, rather than the current 100% relief. Also, unlisted shares (such as those on the AIM market) will qualify for 50% relief, down from the current 100%.

Should You Gift Shares Now?

In light of the changes, many people are considering whether now could be the time to pass their shares in their trading companies on to the next generation of their family to reduce the IHT exposure on their death. However, now is not the time to make rash decisions.

Taking a Step Back: The Bigger Picture

It’s important for business owners concerned about the impact to take a step back and consider the bigger picture before rushing into gifting shares. If done too quickly, it might prove disadvantageous to them and their family.

People have a feeling that they need to do something, and the focus has been on shares in a company – but that might not be the right thing to concentrate on. Important decisions shouldn’t be made just for tax reasons. If people didn’t previously consider gifting shares to their children, it may just be the IHT changes driving their thinking. There must be other reasons why they haven’t given the shares away before, and those reasons may still be valid.

Is Now the Right Time to Transfer Control?

For example, if it is a family company, is now the right time for children to take control? They may be facing other issues such as an impending divorce or financial difficulties owners may not be aware of, or they may lack the necessary experience, potentially leaving the business susceptible to problems.

Additionally, is gifting shares the best option, particularly if business owners need the income or capital value, or if it results in the loss of control of their company?

Exploring Alternative Options

For some people, it is definitely worth considering other options such as making gifts of shares to trusts or individuals, but this may not be the right solution for everyone. Before giving shares away, the implications need to be understood.

A younger business owner could gift shares or give something away, but life insurance to cover that exposure may be a better option depending on the circumstances. It might even be worth combining keeping those shares alongside insurance cover to protect against the tax liabilities that may arise on death.

They also need to think about other assets. Maybe giving away something that is simpler, does not generate any income, or would not benefit from any IHT relief could be a better approach.

Seek Professional Advice Before Acting

The first step should be to seek professional advice that considers the full picture, particularly with regard to the impact and exposure of IHT changes and BR/AR implications.

We Are Here to Help

Whatever your circumstances, estate planning is crucial, particularly with the inheritance tax changes coming into force. Our specialist team has significant experience in helping individuals manage their inheritance tax exposure efficiently. If you’re concerned about how the impending changes may impact you or have any questions around managing your assets, please get in touch here – Request A Call Back | Azets UK

Disclaimer

The information contained within this insight is for guidance only and does not constitute advice, which should be sought before taking any action or inaction.

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