The latest IHT changes the government is bringing in - announced after the Budget

Helen Gaskell, an experienced wills, trusts and probate solicitor, and Rob Dobson, a partner in corporate team at Napthens, look at how the changes made to Inheritance Tax in the October 2024 Budget, and the recent tweaks in the November 2025 Budget, will impact people and businesses.

There are big changes to Inheritance Tax (IHT) coming this year, that business owners need to be aware of. Indeed, there have even been changes to the changes, which went largely unnoticed just before Christmas. 

As advisors to many business owners and farmers, we welcomed the news on 23rd December that the Government has increased the proposed cap on the reliefs available for businesses and farms from the proposed £1m to £2.5m.

This is a much better situation than envisaged, however, it is still a cap on what is currently an uncapped, and extremely valuable relief from Inheritance Tax.

From April 2026, the reliefs known as Business Relief and Agricultural Relief, will be capped at £2.5m.

This means that any business owners with a business valued at over £2.5m may find that their estates will have to pay Inheritance Tax, albeit at a reduced rate of 50 per cent of the usual rate of 40 per cent.

The impact of this can be significant for a business.

For example, on a business valued at £10m, instead of this being passed tax-free to the beneficiaries, they will have to find the funds to pay 20 per cent of anything over £2.5m, which (ignoring any other allowances for IHT) would equate to £3m.

This can be paid by instalments over ten years, interest free. But, without forward planning, this could leave businesses in a difficult position with the extra outgoings.

In her article in Lancashire Business View last year, Victoria Cross covered how best to structure a will to capture the allowances available on the death of a business owner.

In this article, we’re exploring some of the options available for those wanting to potentially further mitigate Inheritance Tax on their businesses through lifetime giving.

Gifts made before 6th April 2026 will qualify for the full 100 per cent rate of relief, even if death occurs later. Business owners are encouraged to seek timely advice to obtain valuations of businesses and consult professional advisors as each situation will be unique. As clearance from HMRC is likely to be required, time is of the essence.

By making lifetime gifts, the hope is to capture as many available allowances as possible, by spreading the value of the business across the family. But, loss of control, and the potential threat from family breakdowns such as divorce, are a real concern to many.

Here are some of the options that are available when considering lifetime gifts and restructuring for IHT purposes:

Outright gifts – This is on the face of it the most straightforward option, though, for many, the risks are too high. By gifting business assets or shares outright, the loss of control means that this is simply not a viable or preferred option. If the recipient suffers a breakdown in their relationship or financial difficulty, the business or shares is theirs for the purpose of redistribution by the courts.

Gifts to trust – existing trusts may offer multiple £2.5m allowances for those who had trusts prior to the budget 30th October 2024. For those who do not, gifts to trust now are still an option, though the value in each will be aggregated. Trusts allow the business owner to retain control by remaining as a Trustee of the trust fund (shares) but the beneficiaries would be the family members. 

Family investment companies (FIC) – this is the name given to a private company set up with different classes of shares for different family members. The rights of the share classes can be set to allow the original business owner to retain control through voting rights, but limit the value of those shares. The recipient family members would usually receive shares that have limited voting rights but benefit from the growth in value of the company and/or dividends. 

A combination of FICs and trusts – instead of gifting business assets and/or   shares outright to children, they can be gifted to trust, which offers the asset sheltering benefits against divorce etc. as above, and the ability to transfer assets and shares between different family generations.

We are seeing an increasing number of clients using a combination of FIC’s and trusts to enable the intergenerational transfer of wealth, whilst seek to minimise the impact on a trading business in the event of the death of the business owner or significant shareholder.

Whichever legal route is chosen, careful tax planning is also required to ensure that there is a joined up and holistic approach as every business and business owner is unique.