In this article, we explore the key changes, potential challenges, and steps business owners can take to mitigate the impact on their estate and succession planning.

The main changes

• 100% Business Property Relief (BPR) restricted to £1 million per individual transferor.
• Unused relief cannot be transferred from one spouse to another.
• Reduced rate of 50% applicable to transfers of value of qualifying property in excess of £1 million.
• Rate of BPR applicable to AIM listed shares reduced to 50% without £1 million allowance.
• Main changes take effect in respect of transfers of value on or after 6 April 2026, but with anti-forestalling provisions for transfers of value made on or after 30 October 2024.
  

Anticipated provisions

Reduced relief applies to transfers of qualifying property if:

• Transfers are made on death where death occurs on or after 6 April 2026.
• Failed Potentially Exempt Transfers (PETs) where the transfer is made on or after 30 October 2024 and death occurs on or after 6 April 2026.
• Chargeable lifetime transfers made on or after 30 October 2024 where death occurs on or after 6 April 2026.
• Periodic (10 year anniversary) and exit charges from relevant property trusts where event occurs on or after 6 April 2026.

Challenges

• Draft legislation has not yet been published (expected ‘early’ in 2025).
• Funding the Inheritance Tax, particularly if other assets within the estate are insufficient to cover the amount due. Assets may need to be sold within the company (triggering a Corporation Tax charge) and then distributed to the beneficiaries (triggering Income Tax on a dividend) in order to fund the Inheritance Tax.
• Valuations will be required when gifting qualifying shares, on events within trusts and on death.
• Balancing potential Inheritance Tax savings at 20% (for BPR assets exceeding £1 million) by gifting in lifetime as a PET with the loss of a Capital Gains Tax uplift to market value at 24% which would be available if the asset is instead gifted on death. This is less of a concern if the asset is unlikely to ever be sold.
• The risk of triggering an Inheritance Tax charge on a failed PET or chargeable lifetime transfer (death within seven years of the gift) and losing the Capital Gains Tax uplift to market value.
• The potential need to revise Wills regularly to take account of earlier lifetime transfers becoming exempt (after seven years).

Potential options

• Ensure that family members have sufficient interests in the business to make use of the £1 million 100% relief allowance.
• Consider updating Wills to leave qualifying assets worth £1 million to non-exempt beneficiaries (not the surviving spouse) on the 1st death.
• Make PETs (gifts to individuals) or gifts into trust of qualifying property whilst 100% relief is still available and with the benefit of Capital Gains Tax hold-over relief.
• Cover the potential Inheritance Tax liability on death by taking out a whole of life assurance policy, and on failed lifetime gifts via a fixed term assurance policy.
• 10-year interest instalment option for Inheritance Tax liabilities arising on BPR qualifying assets.
• Buy back of shares to cover the Inheritance Tax liability, this will result in no Capital Gains Tax or income tax but relies on there being other shareholders.

Please get in touch with your usual Rickard Luckin contact to discuss your individual circumstances, or visit rickardluckin.co.uk/contact