Passing On the Family Business: What the April 2026 Inheritance Tax Changes Mean for You
Updated: Aug 28
Most owners of a family business intend to pass it on. Far fewer have written down how. Until this year that was mainly a risk to family harmony rather than to the tax bill, because business assets usually passed free of inheritance tax. From 6 April 2026 that is no longer automatic — and for the first time in decades, a successful family business can create a real inheritance tax liability.
Here is what has changed, who it affects, and the questions worth answering now rather than in a hurry later.
What changed on 6 April 2026
Business Property Relief (BPR) has kept business assets out of inheritance tax for years. It gives 100% relief on shares in an unquoted trading company, a sole trader business or a partnership interest, provided you have owned them for at least two years and the business genuinely trades rather than holding investments.
The relief has not gone. It has been capped.
From 6 April 2026, each person has a £2.5 million allowance covering business property relief and agricultural property relief combined. Qualifying assets within the allowance still receive 100% relief. Anything above it receives 50% relief — which, against the 40% inheritance tax rate, amounts to an effective 20% charge on the excess.
Three details matter:
The allowance is transferable between spouses and civil partners, in the same way as the nil-rate band, so a couple can pass on up to £5 million of qualifying assets at 100% relief.
Shares not listed on a recognised stock exchange, including AIM shares, receive 50% relief and sit outside the allowance.
Inheritance tax on business and agricultural property can now be paid in ten equal annual instalments, interest-free.
What this looks like in practice
Take a trading company worth £4 million, owned outright by one shareholder.
Before April 2026, BPR would have covered all of it and there would have been no inheritance tax on the shares.
Now, the first £2.5 million attracts 100% relief. The remaining £1.5 million attracts 50%, leaving £750,000 in the estate. At 40%, that is £300,000 of inheritance tax — payable over ten years, interest-free, at £30,000 a year.
That is a manageable figure if you know it is coming and the company can fund it. It is a much harder one if it lands on a family who were not expecting it, in a business whose value sits in premises, equipment and work in progress rather than cash.
Start with the business, not the tax
Succession is a management problem before it is a tax problem. Three questions come first.
Who is actually going to run it?
Ownership and management are separate decisions. Children can own the business without running it, with professional managers in place. Assuming the two go together is one of the most common causes of a failed handover.
What is it worth?
You cannot plan around a £2.5 million allowance without a defensible valuation. It also sets expectations between family members long before anything is signed.
Does it still qualify?
BPR applies to trading businesses. Accumulated cash, investment property or a share portfolio held inside the company can reduce or remove the relief. If surplus assets have built up over the years, that is worth reviewing on its own merits.
The routes for passing it on
Gifts during your lifetime
A gift of shares is normally a potentially exempt transfer: survive seven years and it falls out of your estate entirely. Capital gains tax can often be deferred using Gift Hold-Over Relief, so no tax is due at the point of the gift. Note that gifts made on or after 30 October 2024 are caught by anti-forestalling rules if death occurs on or after 6 April 2026.
Trusts
A trust can move value out of your estate while keeping control over how and when the next generation benefits — useful where children are young, or where you want to separate income from control. Trusts have their own allowance and their own ten-yearly charges, so they need modelling rather than assuming.
An Employee Ownership Trust
If there is no family successor, selling to an EOT can pass the business to its employees, with no capital gains tax on a qualifying disposal and the ability to pay staff bonuses of up to £3,600 a year free of income tax.
A sale
Sometimes the honest answer is that nobody in the family wants to run it. A trade sale converts the business into wealth that is far easier to divide, though the proceeds then sit in your estate, and Business Asset Disposal Relief now charges 18% on qualifying gains up to the £1 million lifetime limit.
Fairness is not the same as equal
Where one child works in the business and another does not, splitting the shares equally rarely feels fair to anyone. The child running it carries the risk and the hours; the others hold an asset they cannot sell and cannot influence.
Options include leaving the shares to the child in the business and balancing the estate with other assets, or using different classes of share so that income and control can be separated. A shareholders' agreement and up-to-date articles of association matter as much as the wills do.
Above all, say it out loud while you are still here to explain it. Most family business disputes are about surprise rather than money.
Common mistakes
Leaving it until retirement is imminent. Succession planning works best five to ten years out.
Assuming BPR is automatic. The two-year ownership test and the trading requirement both have to be met.
Forgetting the wills. Relief is wasted if the estate is structured without the allowance in mind.
Planning the tax without planning the leadership.
What to do now
Get the business valued.
Check whether the shares still qualify for BPR, and whether surplus non-trading assets are diluting it.
Work out the potential exposure above the £2.5 million allowance, per person, and whether the company could fund it.
Review the wills, the articles of association and any shareholders' agreement together, not separately.
Have the conversation with the family.
Rates and thresholds are those applying for the 2026/27 tax year and can change.
Flow works with family businesses on succession and inheritance tax planning — from valuing the business and testing whether it still qualifies for relief, to modelling what a handover would cost and when. If you would like to talk it through, book a free, no-obligation discovery call with one of our tax team.
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