Smart inheritance tax planning for business owners

Inheritance Tax (IHT) is often overlooked until it becomes a pressing issue. For those with significant wealth, it can take a considerable portion of their estate when passed on to the next generation. With careful planning, this tax burden can be significantly reduced.

For many business owners, one of the most effective strategies is Business Relief (BR), a nuanced area of tax planning, but one that can deliver significant benefits if handled correctly.

In this article, David Hulse, Head of our Independent Financial Advisers team, explores how Business Relief works and how clients are using it as part of their wider estate strategies.

What is Business Relief and why does it matter?

Put simply, Business Relief allows certain qualifying business assets to benefit from relief from IHT, provided they have been owned for at least two years. Historically, some qualifying assets could attract up to 100% relief from IHT, making a significant difference to the value of an estate passed on to future generations.

It applies to unlisted trading companies, shares listed on the AIM market, and business assets actively used in trading. However, significant changes to Business Relief took effect from 6 April 2026, including restrictions on the level of relief available for some assets and a reduction in relief for many AIM-listed investments. The availability and extent of relief depend on the type of asset held, ownership period, and the legislation in force at the relevant time.

This isn’t just tax efficiency for the sake of it. It’s about protecting the value of businesses people have spent a lifetime building and enabling them to pass that value on as efficiently as possible.

Case studies: fictional, but familiar

To make the potential of Business Relief more tangible, let me introduce a few fictional examples that reflect the kinds of conversations we often have with clients:

Late-stage planning that still works

Harold and Julia, both in their 90s, hadn’t had much opportunity for traditional IHT planning. Subject to suitability and the prevailing Business Relief rules, they may consider investing £500,000 in assets qualifying for Business Relief. If the qualifying conditions are met and either partner survives for a further two years, this could help reduce the value of their estate exposed to IHT. It’s not always too late to plan effectively, even later in life.

Balancing flexibility with future planning

Carol, 55, is in good health and wants options. She’s not ready to give assets away entirely. Subject to suitability and risk assessment, Business Relief investments may provide a degree of flexibility, with capital remaining accessible while potentially benefiting from IHT relief after the qualifying period. It can act as a strategic bridge between retaining control and planning efficiently for future generations.

Combining Business Relief with trusts

Louise, 73, wanted to pass wealth to her children and grandchildren while retaining oversight of how it might ultimately benefit the family. Depending on her objectives, trust planning and Business Relief may both form part of a wider estate planning strategy. However, the interaction between trusts and Business Relief is complex and requires specialist advice to ensure any arrangement remains appropriate and effective.

When companies hold too much cash

Take Andrew and his father, owners of a business valued at £10 million, including £3 million in cash reserves. One area that often requires careful review is whether cash held within a business is genuinely required for trading purposes. In some circumstances, surplus cash may not qualify for the same level of Business Relief as trading assets. Understanding how HMRC may view such assets can form an important part of effective succession and estate planning.

Risks and considerations to think about: understanding the trade-offs

Every BR-qualifying investment carries risk, especially those tied to AIM shares or smaller companies. These can fluctuate more than mainstream investments. While some investors prefer the potential for higher returns, others may favour lower-volatility options. The right route depends on your risk profile, objectives and time horizon.

Is Business Relief right for you?

Business Relief is not a one-size-fits-all solution. Everyone’s situation is unique, and it’s essential to assess whether this strategy aligns with your financial goals and risk appetite. Consulting with a qualified adviser who specialises in IHT planning is key to understanding whether Business Relief is the right option for you.

When it comes to managing your estate and minimising IHT, Business Relief can be an invaluable planning tool. Used appropriately and alongside other estate planning measures, it may help preserve more wealth for future generations while maintaining flexibility and access to capital.

If you’re considering Business Relief as part of your IHT strategy, it’s important to seek professional advice to ensure that this approach fits your personal financial circumstances. With the right planning, you can potentially reduce future IHT liabilities and provide greater financial security for your beneficiaries.

Taking control of your legacy

Business Relief offers a powerful and flexible solution for many business owners looking to protect their legacy, but it’s not a plug-and-play fix. It demands foresight, timely action, and a clear understanding of the risks, opportunities and legislative framework involved.

Whether you’re nearing retirement or just starting to consider your estate planning options, now is a good time to review your position. Smart planning today can help provide greater control tomorrow, securing the future you’ve worked hard to build not just for yourself, but for your family. Your business has been your life’s work – make sure it becomes part of your legacy too.

Important note on legislative changes

This article is based on legislation and tax rules in force as at June 2026. Tax legislation is subject to change and the availability and extent of Business Relief may vary depending on individual circumstances and future government policy. We recommend regular reviews of your estate planning strategy to ensure it remains aligned with current law and your long-term objectives.