Entrepreneurs and family business owners are being urged to act now to avoid some potentially damaging tax bills ahead of changes due to come into force in April.
A new cap on agricultural property and business inheritance tax reliefs will come into force on 6 April. This means the families of business owners are likely to face greater inheritance tax (IHT) bills at death. In some cases this could spell jeopardy for the firm itself, financial advisers have said.
Lee Matthews, senior partner in financial planning at wealth management firm Evelyn Partners, said: ‘For many business owners looking at the long-term prospects for their firm and their family’s financial security, 6 April this year is a date that creates a clear deadline for planning.
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“They can still take steps now to mitigate some potentially damaging tax liabilities. A sudden and unexpectedly large IHT bill, particularly where liquid assets are in short supply, could spell the end for even a successful enterprise and the jobs it provides.”
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What inheritance tax change is happening in April 2026?
From 6 April 2026 there will be a £2.5 million cap on the combined value of assets eligible for 100% Business Property Relief (BPR) and Agricultural Property Relief (APR). Any value above this cap will only receive 50% relief, potentially leading to an effective 20% IHT charge on the excess for farms and businesses.
The government had originally set the BPR and APR cap at £1 million but later U-turned on this policy to up the limit.
Another recent policy revision means spouses will be able to inherit unused tax relief, similarly to the inheritance tax allowance (also known as the nil-rate band). Any of the £2.5million allowance unused at death will be transferred to the surviving spouse – and it is not necessary for the deceased spouse to have owned qualifying assets.
What should business owners consider doing before April to avoid inheritance tax?
Evelyn Partners’ Matthews said there is a six step sequence business owners could follow ahead of April 2026, particularly in the event they want to transfer their business into a trust or sell it. What matters is not just the steps – but the order in which they are carried out.
1. Identify which assets qualify for business relief
Not all parts of a business may qualify for business relief. Owners should review the company structure, activities and balance sheet, potentially with the help of professional advisers. Large cash holdings, investment activities that creep into the company over time or group structures with mixed trading and investment entities may not qualify, said Evelyn Partners.
2. Consider a gifting strategy before the April 2026 deadline
With the rules for business relief changing, now is the time to review gifting strategies to avoid inheritance tax, particularly where trusts are involved, Evelyn Partners said.
Before 6 April 2026, it is possible to transfer business relief-qualifying shares – of any value – into a discretionary trust, with no immediate inheritance tax charge, provided the shares qualify for relief.
From 6 April 2026, the amount of business relief-qualifying assets that can be transferred into trust with 100% relief will be capped at £2.5 million per individual. Any excess above this will attract only 50% relief, potentially giving rise to an immediate inheritance tax charge.
This £2.5 million allowance is now transferable between spouses or civil partners, allowing a couple to pass up to £5 million of qualifying assets free of IHT on the last spouse’s death.
Matthews said: “Trusts can be key to succession planning, family wealth preservation and long-term control, but they should be considered as part of a broader strategy. Gifting, whether directly or into trust, must be affordable and should not put your own financial security at risk.”
If you are considering using trusts, allow for plenty of time to allow time for legal drafting, valuations and any required shareholder approvals.
3. Carry out ownership changes early
Many financial planning strategies for businesses, Matthews pointed out, require changes in the ownership structure before shares can be settled into trust or before a sale can proceed. These changes often take longer than expected due to legal processes, valuation work and the need for shareholder consent, so should be done as early as possible.
Examples include creating new share classes or preparing a holding company for a future transaction.
“It is critical that reorganisations are completed before any trust transfers are attempted,” Matthews said. “Poor sequencing can inadvertently break business relief conditions or create unexpected tax exposures.”
4. Begin life insurance underwriting
If a business is sold, business relief qualifying shares convert into cash. “The moment this happens, the potential inheritance tax protection they offered is lost. If the owner dies before the proceeds are reinvested or placed into an appropriate structure, their estate may face a large inheritance tax exposure,” Matthews said.
Life insurance held in trust can provide a simple and effective bridge through this risk period, but underwriting can take weeks or months. Medical evidence, GP reports and financial information can create delays that may push completion too close to the deadline.
“Starting the underwriting process early can help to have cover in place when it is actually needed rather than after the event,” Matthews advised.
5. Make sure your business and personal financial plans align
Business owners often prepare for a sale or refinancing without considering how this interacts with their own wills, trusts and estate plans. This can be risky.
Matthews said: “For example, a new holding company may change business relief status, or a change in voting rights may affect succession intentions. Wills may need to be updated to make best use of the business relief allowance or to direct assets to trusts in a way that preserves and maximises potential relief.”
Advisers should coordinate legal, tax and investment teams so that both the business and personal sides of the plan support each other. “A short misalignment at the wrong moment can jeopardise years of planning,” Matthews warned.
6. Prepare for post-business sale cash
Once a business sale is complete, if that is the chosen route, owners often hold large amounts of cash for a period while deciding how to reinvest. Evelyn Partners cautioned this creates an immediate inheritance tax risk and can also lead to missed opportunities if reinvestment is slow.
“A forward plan should outline where liquidity will be held, whether a family investment company or personal investment company is appropriate and how the proceeds will be managed until a long-term portfolio is established,” said Matthews.
Planning for this stage now reduces stress after completion and makes the overall transition more tax efficient.
Get financial advice
Ultimately, given the complexity of business relief and inheritance tax rules, it makes sense to speak to a Financial Conduct Authority-regulated professional financial adviser before taking any action. You can find a directory of your local experienced financial advisers on websites like VouchedFor and Unbiased.
