For decades, Business Property Relief gave UK entrepreneurs a clear succession path. Build a qualifying business, hold it for two years, and pass it on to the next generation free of inheritance tax. Succession planning, at least in this respect, was relatively straightforward. Inheritance Tax and UK Business Owners need to know what the new rules mean.

That certainty no longer exists. From 6 April 2026, the full BPR exemption has been replaced by a capped relief of £2.5mn per person – with a 50 per cent relief applying above that threshold, producing an effective inheritance tax rate of 20 per cent on the excess.

For business owners with estates above this level – including those living abroad who retain ownership of UK-based companies – the implications are material.

What Has Changed

Prior to April 2026, qualifying businesses and farms could be passed to heirs with 100 per cent inheritance tax relief – meaning zero IHT on the transfer, regardless of value. Chancellor Rachel Reeves first proposed capping this at £1mn per person in the 2024 Budget. Following significant pushback, including protests from farming communities and business groups, the cap was raised to £2.5mn and made transferable between married couples and civil partners.

That means a married couple can now shelter up to £5mn of business assets from IHT. Above that combined threshold, a 50 per cent relief applies – resulting in an effective rate of 20 per cent, rather than the standard 40 per cent charged on other assets.

The Treasury estimates the changes will generate roughly £300mn in additional tax revenue by 2030-31.The Office for Budget Responsibility has noted, however, that the revenue yield is “highly uncertain” and unlikely to reach a steady state for at least 20 years.

The Liquidity Problem

The practical challenge for many business owners is not the tax rate itself – it is finding the cash to pay it.

Family businesses are typically asset-rich and cash-poor. The business may be worth several million pounds, but that value is locked inside a legal entity. Raising cash to meet an IHT bill on death requires either selling shares, borrowing against the business, or liquidating other assets.

“Many family businesses that previously assumed they could pass on the company intact may now face substantial tax liabilities – often without sufficient cash outside the business to pay them.” – Jacob Robinson, Taylor Rose

Where one spouse owns the majority of the business, or where the combined estate value exceeds the £5mn couple’s threshold, the problem intensifies. Lord Leigh of Hurley, senior partner at Cavendish and a contributor to a recent House of Lords report on IHT, has raised particular concern about minority shareholding situations – where executors may be unable to transfer shares to family members until the IHT bill is paid, but where no obvious buyer exists for those shares.

If other family members lack the cash to fund the tax liability, the result may be a forced sale – potentially to a listed company or international buyer who recognises the distressed position.

Restructuring Risk: The Multiple Shareholding Strategy

Some business owners are exploring a strategy of dividing shareholdings across multiple owners – including family members and trustees – to allow each individual to use their own £2.5mn BPR allowance. In theory, this can reduce total IHT exposure. In practice, it carries significant legal risk.

Minority Shareholder Claims

Under section 994 of the Companies Act 2006, a minority shareholder who believes they have been treated unfairly can bring a claim before the English courts. If the court agrees, it may order a buyout of the minority stake at fair value – an outcome that can trigger an unplanned liquidity event at the worst possible time.

These claims tend to surface the most sensitive commercial questions: whether the founder’s salary is in line with the open market, how dividends are being declared, and whether shareholders are receiving adequate information. The process is commercially disruptive and carries reputational risk through disclosure of private company affairs in court proceedings.

Courts also have wide discretion in pricing a buyout, including awarding compensation for value extracted from the business historically. That price may bear no relation to what the business can actually afford to pay.

Corporate Governance Before Restructuring

The advice from practitioners is to review governance structures carefully before introducing new shareholders. Shareholders’ agreements should be re-examined and updated. Constitutional documents should address decision-making processes clearly. Directors’ and officers’ insurance policies should be checked for coverage of minority shareholder claims.

The interposition of trustees to hold minority stakes can provide a counterbalance against inexperienced beneficial owners – though this introduces its own risks if relationships between beneficiaries and trustees deteriorate.

Options for Managing the Exposure

Advisers are broadly divided between short-term and long-term planning approaches, depending on the owner’s intentions for the business.

If You Plan to Sell

Business owners intending to sell within the short to medium term are typically less focused on navigating BPR reliefs and more interested in bridging the risk of an unexpected death before a transaction completes. Term life insurance policies held in trust are a popular solution here – covering the potential IHT liability until the sale proceeds are available and the estate can be restructured.

If You Plan to Pass the Business On

For those who want the business to remain in the family across generations, the planning is more involved. This typically means revisiting ownership structures, reviewing wills and trusts, considering accelerated gifting under the seven-year rule, and building liquidity outside the business over time.

Whole-of-life policies held in trust have become the most widely used instrument for those with illiquid business assets. These policies pay out a guaranteed sum on death, sit outside the taxable estate when held in trust, and can be used to fund an IHT bill without forcing a sale. The average policy value rose by nearly 52 per cent in 2025, reflecting the scale of demand following the BPR changes.

The Expat Dimension

UK domicile, not tax residency, determines exposure to UK inheritance tax on worldwide assets. Many British business owners who have relocated to Hong Kong, Singapore, the UAE or elsewhere retain UK domicile – and with it, full exposure to IHT on global assets including their UK business shareholdings.

Understanding your domicile status, and whether your UK residency history creates a deemed domicile position, is a critical first step. That begins with an accurate assessment of your position under the UK Statutory Residence Test – which determines both your residency status and, over time, your exposure to UK tax on death.

This article is for informational purposes only and does not constitute financial advice. Carey Suen works exclusively with high-net-worth investors who meet the relevant eligibility criteria in their jurisdiction.