Business Relief changes: putting your plan into practice

Finding the right balance 

The responses we have seen to the new rules span the full spectrum, with some business owners planning exhaustively while many are burying their heads in the sand and ignoring the real risks. We have also seen evidence of some businesses focusing on just one planning lever while losing sight of the bigger picture, such as a business owner making significant gifts that have the potential to leave them short in the future.  

We advise clients to focus on getting the right plans in place, to keep them updated and to accept there is often a limit to how much can be controlled. There are ultimately a finite number of levers available to manage your tax exposure, but a significant difference can be made by using them properly, and in the right combination.

Available options  

Planning will almost always require a combination of elements rather than a single solution, and anything that looks too good to be true should be treated with caution.

The main planning levers broadly fall into two categories:

Reducing liability 

Reducing liability

• Maximising Business Relief  
• Direct gifting  
• Trust gifting 
• Utilising minority shareholder discounts 
• Growth share planning 
• Relocating outside of the UK  

Managing residual liability  

• Ensuring sufficient liquidity in the estate 
• Insurance 
• The ten-year instalment scheme  

Planning in practice 

The right combination of planning tools depends on the size of the business, because the relative scale of the exemption changes what is practical and what level of control can be retained.

At the smaller end, a modest gifting programme combined with trust planning will often be enough to manage exposure effectively without giving up meaningful control.

At the larger end, the exemptions become relatively small against the overall value of the business, which means more has to be given away to make a meaningful dent in the exposure. This can pose challenges when it comes to control, family dynamics and the founder's own financial security. The planning therefore tends to involve a broader combination of tools, with greater emphasis on growth shares, minority discounts and insurance. Retaining control while reducing exposure is a more complex balancing act, but it is achievable with the right approach.

Keeping your plan under review 

The documents and structures that underpin good planning need to keep pace as your business evolves and your family circumstances change. Getting them in place is a crucial first step but keeping them under review is just as important.

• Wills: Most were drafted for a different tax landscape and haven't been revisited since. One area to check is whether shares pass in a way that uses both spouses' allowances, because if not, relief can be wasted. It is also worth considering how family circumstances may have changed since the will was written. Second marriages, new grandchildren and estrangements can all mean an old will no longer reflects what is needed.
• Shareholder agreements: If you don't have one, getting one in place should be a priority. A well-drafted agreement protects the business and the family, setting out how decisions are made, how disputes are resolved and what happens if a shareholder wants to exit. Without an up-to-date shareholder agreement, succession planning can become very difficult very quickly.
  • One technical point worth checking is whether the agreement uses option structures rather than binding obligations. A binding obligation causes the shares to lose BR entirely on death, because HMRC treats the interest like a right to cash rather than a share in a trading business. Option structures create a right to buy and right to sell, rather than an obligation. This is a subtle but fundamental difference.
• Life insurance: Existing policies need to be reviewed to make sure they are structured correctly. Whether insurance sits inside or outside the estate is a key detail that decides whether it will help or hinder your planning. A policy not written in trust pays into the estate, which funds the IHT bill but also increases it. A policy written in trust sits outside the estate and can be used to meet an IHT liability without increasing it. However, premiums paid for a policy in trust can constitute Chargeable Lifetime Transfers, so getting specialist advice on the best way to structure your insurance is essential.
• Company structure: If the company stops being a trading business, none of the reliefs apply. A shift in revenue mix, a significant cash accumulation, or a change in activity can all affect qualifying status, so this needs to stay under review as the business evolves.

The new Business Relief rules have undoubtedly made succession planning more complicated, but with the right combination of planning levers in place, there is a clear way through. The families who navigate this well will be the ones who plan early and revisit often, so that the future of the business is shaped by their wishes, rather than by a tax bill.