How Business Owners Can Reduce Inheritance Tax with Strategic Planning

Ravi Solanki • August 8, 2025

Inheritance Tax (IHT) planning has become increasingly critical for UK business owners. With legislative changes coming into force from April 2026, the traditional protections around Business Property Relief and Agricultural Property Relief are being eroded. Here’s how to adapt, protect your business legacy, and potentially save hundreds of thousands in tax.

Why Business Owners Must Act Now

Inheritance Tax receipts reached a record £6.7 billion in 2022–23, with 31,500 estates taxed—13% more than the year before. From April 2026, new rules will cap relief on qualifying business and agricultural assets at £1 million per estate. Above that cap, only 50% relief applies—leading to a 20% IHT rate on the excess value. From April 2027, pension pots will also be included in IHT calculations, increasing exposure further.

Without timely planning, business owners risk leaving behind substantial tax bills for their beneficiaries. Strategic planning now could help protect both business continuity and your family’s financial security.

Understanding Current IHT Reliefs That Benefit Business Owners

Business Property Relief (BPR) / Business Relief (BR)

Under current UK law, Business Property Relief (also known as Business Relief) provides up to 100% IHT relief on qualifying business assets, such as:

Unlisted shares or securities in a trading company
Sole trader or partnership business interests
Land, buildings, or machinery used in a business you control

To qualify, assets typically must be held for at least two years before death or gifting. Relief is currently uncapped, allowing business owners to pass on companies worth millions without incurring IHT.

However, non-trading companies, investment-based businesses, or surplus cash reserves may not qualify. It’s essential to determine whether your business structure and balance sheet align with BPR rules.

Residence Nil-Rate Band (RNRB) & Standard Nil-Rate Band

Every individual in the UK gets a £325,000 standard nil-rate band. When your main residence is passed on to direct descendants, you may also claim the Residence Nil-Rate Band, worth up to £175,000. Together, a couple could shelter up to £1 million of property from IHT.

However, these allowances are gradually tapered for estates over £2 million, and business assets don’t always benefit directly. Combining these with business relief and lifetime gifting is the most effective way to structure your estate.

Gifts, Charitable Giving, and Trusts

Making gifts during your lifetime can reduce your estate’s value. Provided you live for seven years after the gift, it becomes exempt from IHT. Even if you die sooner, taper relief may reduce the tax due.

Charitable donations of 10% or more of your estate reduce the IHT rate from 40% to 36%. Additionally, trusts (such as Discounted Gift Trusts) can remove value from your estate while still providing income.

What’s Changing from April 2026—and What You Should Do

New Cap on Business and Agricultural Relief

From 6 April 2026, the relief for business and farming assets will be capped at £1 million per estate. Currently, a trading business worth £2 million would receive 100% BPR. Under the new rules, only £1 million qualifies fully; the remainder receives 50% relief, incurring 20% tax liability.

Relief Not Transferable Between Spouses

Currently, unused reliefs can pass to a surviving spouse. The upcoming reforms remove this flexibility: the £1 million cap will apply per estate, not per person, even within married couples. Families relying on successive spousal exemptions may face large unexpected bills.

Pension Pots Become Taxable

Another significant reform comes into force in April 2027, when unused pensions will be included in the deceased’s estate for IHT. Previously, pensions could be passed tax-free to beneficiaries under age 75. This change means more estates will exceed the nil-rate threshold.

Strategic Planning Steps for Business Owners

1. Update Your Succession Plan and Will

Review your will and business succession plan. Consider using nil-rate band discretionary trusts to shelter allowances. If you haven’t updated your estate documents since before these proposed reforms, now is the time.

2. Gift Business Assets Before the Cap Takes Effect

By gifting business interests before April 2026, you could secure the current full relief on their value. If you survive for seven years, the gift may become fully exempt from IHT. Use gift inter vivos insurance to mitigate risk if death occurs within seven years.

3. Use Whole-of-Life Insurance in Trust

A whole-of-life insurance policy placed in trust can provide beneficiaries with a tax-free lump sum to pay IHT. This is particularly useful when estates contain illiquid assets such as business property or land. Policy premiums are typically small relative to the potential tax liability.

4. Invest in BPR-Qualifying Opportunities

Investing in AIM-listed shares or qualifying private trading companies can attract BPR after just two years. However, these investments are high risk and require professional guidance.

At Sure Wealth, we help clients assess whether BPR-qualifying investments align with their risk tolerance and financial goals.

What a Strategic Sequence Could Look Like

Valuation: Obtain a professional valuation of your estate, including business interests, property, pensions, and personal wealth.
Structure Lifetime Gifts: Begin gifting surplus assets before April 2026 to maximise use of current reliefs.
Set Up Trusts: Use discounted gift trusts and family investment companies to move wealth outside your estate.
Purchase Insurance: Cover projected IHT liability with a policy in trust.
Update Will and LPAs: Ensure your wishes are recorded and protections are in place.
Review Regularly: Revisit your plan annually or when major legislation changes occur.

Why Timing Is Crucial

Waiting until 2026 or later could expose your business to substantial tax that would have been avoidable under current rules. Acting now gives you more tools, more exemptions, and greater control over how your legacy is preserved.

Furthermore, pension IHT inclusion from April 2027 means even those without traditional estates may be affected. If you have multiple pension pots, their combined value could exceed the £325,000 threshold.

Why Work with Sure Wealth?

At Sure Wealth, we specialise in helping entrepreneurs, company directors, and high-net-worth individuals protect their wealth. We tailor our strategies to your business structure, family situation, and long-term vision.

Our team brings together expertise in:

Business succession planning
Inheritance tax mitigation
Estate preservation
Trust and investment strategies
Insurance-based estate protection

By working with us, you can:

Lock in valuable tax reliefs before they are capped or removed
Reduce uncertainty for your family and business
Build a tax-efficient legacy that reflects your values and hard work

Take the Next Step

Inheritance Tax is no longer a concern for only the ultra-wealthy. With frozen thresholds, rising asset prices, and new taxable categories, more business owners than ever are being pulled into its scope.

Don’t wait until it’s too late. Start your personalised inheritance tax strategy today.

Call us on 0203 551 1090 or visitour contact page

Let Sure Wealth help you build a smart, forward-thinking plan to safeguard what matters most.

This content is for informational purposes only and should not be considered financial or legal advice. Always consult with a qualified professional.

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