4 Inheritance Tax Planning Options for Business Owners

If you have read our article on Business Property Relief in 2026, you'll know that the April 2026 Business Property Relief changes could leave many business owners and Landlords with a meaningful inheritance tax liability they didn't have before.

This article is about what you can do about it and why acting sooner rather than later gives you significantly more options.

What does this mean for a typical business owner? 

To put the numbers in context: under the old rules, a business worth £5 million could be passed on entirely free of inheritance tax. Under the new rules, the same business could generate an IHT bill of £500,000 or more, due within six months of death, often before probate has even concluded.

That creates a very specific problem for business owners whose wealth is largely tied up in illiquid assets; the business itself, property associated with the business, or other assets that cannot quickly be converted to cash. Families faced with a six-month deadline to settle an IHT bill are often left with uncomfortable choices: selling part of the business, taking on borrowing, or restructuring ownership at short notice.

This is particularly acute where the business is a family-owned company with no intention to sell. The business may be worth several million pounds on paper, but generating the cash to meet an IHT liability is an entirely different challenge. 

Inheritance tax planning options for business owners

The good news is that there are several planning strategies available, and taking action now, before April 2026, gives you more options than waiting. The right approach depends on the size and structure of your business, your family situation, and your long-term intentions for the company.

1. Lifetime gifting 

Transferring business assets during your lifetime - whether directly to family members or into a trust - can reduce the value of your estate subject to IHT. Before 6 April 2026, gifts of qualifying BPR assets can be made without an immediate IHT charge, regardless of value. After that date, the new £2.5 million allowance applies retrospectively if you die within seven years of the gift.

Lifetime gifting is not straightforward, it has capital gains tax implications and requires careful consideration of whether you can afford to give assets away permanently. But for business owners with a clear succession plan, it can be highly effective.

2. Trusts and family investment companies 

Placing business assets into a discretionary trust or family investment company (FIC) can allow wealth to be passed down through generations in a more controlled and tax-efficient way. These structures are complex and require specialist advice, but for larger estates they can be extremely valuable planning tools.

3. Whole of Life insurance 

One increasingly popular approach -particularly where business assets are illiquid and the family has no intention to sell - is to take out a Whole of Life insurance policy to fund the IHT liability when it becomes due.

Unlike term insurance, a Whole of Life policy pays out regardless of when death occurs. The policy is typically placed into a discretionary trust, which keeps the payout outside of the estate and therefore outside the scope of IHT. The proceeds can then be used by beneficiaries to settle any tax due, without needing to sell or restructure the business.

This approach works particularly well for business owners whose main assets are tied up in the business or associated property, and who want to preserve the business intact for the next generation rather than being forced to sell to pay a tax bill.

4. Pension planning 

An important separate change is that most inherited pension pots will become subject to IHT from April 2027. This reverses decades of conventional planning wisdom that encouraged business owners and high earners to keep money in their pension and spend other assets first. If pension wealth is now going to face a 40% tax charge on death, the calculus changes and pension drawdown strategies may need to be revisited.

Why acting before April 2026 still matters

 

Even with the December 2025 increase in the BPR allowance from £1 million to £2.5 million, many business owners still face a meaningful IHT exposure they did not have before. The relief is more generous than originally proposed, but it is still a cap and for businesses above that threshold, the new 20% effective rate on the excess is a real cost.

The decisions involved in IHT planning -restructuring ownership, setting up trusts, making lifetime gifts, taking out insurance are not things that can be done overnight. The closer April 2026 gets, the fewer options are available and the less time there is to implement them properly.

If you have not yet reviewed your estate and succession plan in light of these changes, the time to do so is now.

Common questions from business owners on inheritance tax

Does my business qualify for Business Property Relief? 

Most actively trading businesses qualify, including sole traders, partnerships, and unquoted companies. Investment businesses such as those whose primary activity is holding property or shares generally do not qualify. The business must have been owned for at least two years prior to the transfer.

What if my business is worth more than £2.5 million? 

The first £2.5 million of qualifying assets still benefits from 100% relief. On the value above that, 50% relief applies, resulting in an effective IHT rate of 20%. For a married couple or civil partners, unused allowance from the first death can be transferred, potentially sheltering up to £5 million at 100% relief.

Can I still gift my business to my children before April 2026? 

Yes, but with an important caveat: the new rules apply retrospectively to gifts made on or after 30 October 2024 if the donor dies on or after 6 April 2026. So the timing of any gift needs careful thought, and the seven-year survival rule still applies.

What happens if I need to sell the business to pay the IHT bill? 

IHT on business assets can be paid in instalments over ten years, which provides some breathing room for illiquid estates. However, this only applies while the asset is retained. If the business is sold, any outstanding IHT becomes due immediately. A Whole of Life policy held in trust is one way to avoid being in this position altogether.

Inheritance tax planning for business owners has never been more important or more time-sensitive. Our team can help you understand your exposure, model the impact of the April 2026 changes on your estate, and implement the right strategy for your circumstances. Get in touch to arrange a conversation.