Business Relief changes: key concepts for business IHT planning

Maximising the relief available

The first step is making sure as much Business Relief as possible is being claimed. That means reviewing assets and group structures to understand whether anything needs to change. Many business owners assume they qualify for Business Relief, only to find that the way the business is structured means they don't. In some cases, moving an asset out of a business or out of a wider group is enough to bring it fully within relief. This is the groundwork that should underpin any further planning.

Reducing the estate: gifting and trusts

Gifting is one of the most valuable and, in many ways, the most straightforward planning strategies available to family business owners. Shares gifted to the next generation fall outside the estate if the donor survives seven years beyond the gift.

However, gifting shares also means gifting control, and while many parents trust their children implicitly, it is often the unforeseen situations such as divorce or death that catch families off guard. These risks are worth thinking through carefully before any shares change hands.

Trust planning can help address some of those concerns, allowing parents to transfer value while retaining a degree of control. That said, following the April 2026 changes, trust planning has become more complex for larger businesses, and in some cases an immediate tax charge will apply.

The Capital Gains Tax trap

Whether the next generation will sell the business or stay and run it is a conversation many families avoid having, but the answer often determines whether gifting will be beneficial.

Gifted shares usually keep the original (usually very low) base cost, as the donor will typically not want to trigger a CGT liability on gifting the shares. As such, if the recipient later sells, they can face a significant CGT bill. On the other hand, shares inherited on death are rebased to the market value at the time of death, so selling soon after can trigger little to no CGT. Naturally, if the shares were held until death by the parents, they would potentially suffer IHT but the IHT liability can be much lower than the alternative CGT liability (due to the difference in tax rates and the presence of the £2.5m BR allowance).

If the next generation is likely to sell rather than run the business, accelerated gifting can cost more than it saves.

Share valuation and minority discounting

How a business is valued has always mattered, but the new cap has made it more important than ever. Whereas Business Relief used to cover all qualifying businesses, the figure HMRC settles on now sets the size of the bill. This means valuations will be scrutinised far more closely than before so robust contemporaneous evidence of value is required.

Businesses are usually valued based on their earnings rather than their net assets. HMRC normally view net assets as a floor to value, with many businesses valued much higher. Specialist tax valuation advice is required to help determine that value.

Minority shareholdings are worth less per share than a controlling stake, because the holder cannot direct the company. Breaking up shareholdings into several smaller holdings can help reduce tax bills. However, care needs to be taken as different valuation rules apply for IHT and CGT purposes. Any IHT charge on gifting is based on the reduction in value of the estate, so gifting minority shareholdings can increase IHT liabilities in certain circumstances. Specialist tax valuation advisors can help you navigate the pitfalls and maximise the opportunities of minority shareholdings.

Capping future growth

Growth shares can freeze the value of the parent's existing shareholding at today's level, with all future growth passed to the next generation or to a trust.

These structures were more commonly used by businesses that didn’t qualify for Business Relief, but the introduction of the cap is bringing them into wider use. It is worth noting that the mechanics of these shares are genuinely complex and challenging to value. Poorly drafted schemes can create real problems further down the line.

Key Takeaways

Getting it right

Conversations about succession are difficult, and many families avoid them altogether, leaving no plan in place. Others rush in the opposite direction, gifting shares away before anyone has thought through the consequences for the next generation. The key is to treat planning as an ongoing process rather than a one-off exercise, and to be wary of anything that looks too good to be true: when tax exposure rises, aggressive schemes tend to appear alongside legitimate planning options.

The best plans often combine several tools, and they all start with the same question: what do you and your family actually want to happen?

In the final piece in this series, we will look at the planning we expect our clients to use in response to these changes, and explain more about how we support business owners to achieve the right results, for them and their families.