Navigating IHT Changes for Business Owners

As April 2025 draws near, significant changes to Inheritance Tax (IHT) are set to affect business owners, reshaping how they pass down family assets and secure wealth for future generations. 

Birkett Long’s experts, Tim Field and Ben Parmenter are here to guide business owners through these changes. With decades of experience in estate and business planning, they understand the nuances of tax relief and asset protection and are ready to help you take proactive steps.

Preparing Your Business 

Tim Field, Partner and Head of the Commercial Department at Birkett Long has extensive experience helping business owners navigate complex tax issues. He explains that the upcoming changes to Business Property Relief (BPR) will have a significant impact on how family businesses are passed down. 

For years, BPR has allowed most trading businesses, when owned for over two years, to qualify for 100% IHT relief, meaning that business assets could pass tax-free from one generation to the next.

However, starting April 2026, only the first £1 million of a business’s value will qualify for the existing 100% relief, with any value above that eligible for only 50% relief. Tim highlights the impact of this change, saying, “This shift will likely result in businesses over the £1 million threshold facing unexpected tax liabilities, potentially forcing business owners to sell assets or even parts of the business to cover the IHT burden.”

Tim recommends business owners consider distributing company ownership among family members to address these challenges. “Each individual can access the £1 million relief cap, so spreading ownership can make a substantial difference in reducing tax exposure,” he advises. 

Tim also emphasises the importance of reviewing corporate structures and succession plans. “Ensuring you have the right Shareholder Agreements and Articles of Association in place is essential for ensuring business continuity and protecting your family’s wealth,” he adds.

Personal and Estate Planning 

Ben Parmenter, Partner and Team Leader of Wills, Trusts & Probate at Birkett Long’s Colchester Office, focuses on estate planning for high-net-worth clients. He shares that the IHT changes will affect businesses and personal estates. With the freezing of the IHT nil-rate band at £325,000 and the inclusion of pensions in taxable estates, more estates will no longer fall under the IHT threshold, creating additional challenges for business owners. “Business owners who hold commercial property in their pensions, for example, could be hit hardest by these changes,” Ben explains.

Another important consideration is Capital Gains Tax (CGT). Under the current rules, Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief) allows for a reduced 10% CGT rate on qualifying assets. However, starting in April 2025, this rate will rise to 14%; in 2027, it will increase further to 18%. Ben advises business owners to take action now to transfer assets and capitalise on the current lower rates. “By transferring shares to family members or a family trust, business owners can potentially trigger a CGT charge now at the lower rates,” he says.

Trusts are an effective tool for managing personal and business assets under the new IHT rules. Ben suggests, “Using trusts to hold assets allows business owners to retain control of their wealth while reducing IHT exposure and providing for future generations.” He also points out that with careful planning, trusts can be structured to allow family members to benefit from income without triggering immediate IHT.

Early Planning for Long-Term Success

Both Tim and Ben agree that early action is crucial. While the full impact of these changes won’t be felt until 2026, it’s important to start planning now to secure your legacy, protect your assets, and minimise tax liabilities for future generations. Birkett Long’s team of experts is ready to help guide you through these changes, offering personalised strategies that ensure your business and estate are structured for success.

With Tim’s expertise in commercial and business planning and Ben’s knowledge of trusts and estate management, you can rest assured that you’re in capable hands. Contact Birkett Long to discuss how you can prepare for the IHT changes and safeguard the future of your business and family.