For many family businesses, shares in a trading company form a core part of long-term family wealth. Importantly, they’ve historically provided a tax-efficient way to pass on wealth via inheritance.
Simply keeping hold of shares until you pass away has been an effective form of inheritance tax planning for many years. This is because, shares in qualifying trading companies have usually benefitted from full relief from inheritance tax. But under new legislation, that’s set to change
From the start of the new tax year in early April 2026, new inheritance tax rules will significantly limit the reliefs available on shares in trading companies. For some families, the impact could be substantial. The key point is that there is still a window of opportunity to act, but this window is closing quickly.
In this short article, we’ll examine the changes, what they mean for you, and what you can do to structure your affairs efficiently.
What the rules were and what’s changing from April 2026
The current position
Under the existing rules, shares in an unquoted trading company typically qualify for 100 percent Business Property Relief (BPR) once they’ve been held for two years.
In practice, that means:
- no inheritance tax is payable on the value of qualifying shares on death
- the relief is uncapped, regardless of the size of the shareholding
- the same relief can apply to certain lifetime transfers.
For many business owners, this has made shares in a trading company one of the most inheritance tax-efficient assets to hold and a particularly good option when passing on significant asset value in excess of the usual inheritance tax thresholds.
The new rules from April 2026
From 6 April 2026, Business Property Relief will be capped.
Originally it was proposed that the first £1 million of qualifying business property (e.g. shares in a trading company) would continue to receive 100 percent relief and that allowance could not be transferred on death to a spouse.
However, the government announced just before Christmas that this amount would be increased from £1m to £2.5m and the £2.5m allowance could be transferred between spouses when one passes away (which effectively means a couple can, if structured correctly, have a £5m allowance). This means shares in a trading company are still a good option for values below that £2.5m threshold (or potentially £5m where that value is shared between spouses).
However, any value above £2.5 million will only receive 50 percent relief. The remaining 50 percent will be subject to inheritance tax at 40 percent, creating an effective tax charge of 20 percent on the excess over £2.5m.
This is a fundamental shift in how trading company shares are treated for inheritance tax purposes and will likely affect estate planning for many with shares in excess of £2.5m.
A representative example
To illustrate the impact, consider shares in a trading company valued at £4 million.
Under the current rules £4 million qualifies for 100 percent BPR meaning no tax is paid on those shares at all.
From April 2026, that same amount will see £1.5 million (i.e. the excess over the £2.5m allowance) taxed at a 50% rate. With inheritance tax at 40%, the 50% discount equates to a 20% tax on that £1.5 million, resulting in a total tax bill of £300,000.
That is a six-figure tax bill on an asset that would previously have passed tax-free. Whilst HMRC are allowing this liability to be paid interest-free and in equal annual instalments over a period up to 10 years, paying an inheritance tax liability like this will often mean either having to use other liquid assets from the estate, which would ordinarily have ended up in the hands of beneficiaries effectively reducing their inheritance. Alternatively, the company itself may have to have to fund this over time.
However, extracting cash out of a company to meet any such liability will incur its own tax liability, meaning the amount the company needs to find would need to be grossed up – effectively double taxation (a consequence the government appear to have glossed over). This may also be an overhead the company simply can’t afford, or which will wipe out its profits.
The question that jumps to mind is how can you structure your affairs to be as tax-efficient as possible? The best approach to take is to act before the changes come into effect in April at the start of the 2026/2027 tax year.
Structuring your shareholdings before the April deadline
For shareholders with more than £2.5 million in qualifying trading company shares, the most effective planning opportunities are those taken before April 2026.
Inter-spouse gifting of shares
Given the changes announced in late 2025, which now allow the £2.5m allowance to be transferred between spouses, one simple thing that can be done is to move shares between spouses, so both spouses hold shares in the company. Gifts like this between spouses are usually treated as “no gain, no loss” and, as a result, are generally tax neutral.
By way of example, if one spouse own shares worth £4m and passes away, then under the new rules, inheritance tax would be payable at the effective rate of 20% on the £1.5m excess over the £2.5m allowance. This is a tax charge of £300,000.
If the spouse holding the shares were to transfer half of those shares to their spouse now, then when they pass away, they would only be holding shares worth £2m, so no inheritance tax would be payable.
The surviving spouse would then inherit those shares as well as the deceased’s £2.5m allowance. This means when the second spouse passes away, they would be holding shares worth £4m (i.e. the £2m worth of shares gifted to them and the £2m worth of shares inherited) with an allowance of £5m at that point (i.e. their original £2.5m allowance plus the £2.5m allowance inherited from their late spouse). This means that no inheritance tax would be payable when they pass away as the £4m falls within the £5m allowance. This simple act alone would save £300,000 in inheritance tax.
Lifetime gifting of shares
Another option to take before the deadline is a lifetime gift of shares.
Shares in a trading company can be transferred during lifetime rather than on death.
If the person making the gift survives for seven years, the value of the shares falls completely outside their estate for inheritance tax purposes.
Crucially, under the current regime:
- Business Property Relief can apply immediately to lifetime gifts
- that means no inheritance tax charge at the point of transfer
- full 100 percent relief applies where the shares qualify and the transfer structure is appropriate.
For business owners with shareholdings above £2.5 million, gifting shares before April 2026 can lock in the current, more generous treatment.
This approach is particularly relevant for:
- family businesses with adult children involved in the company
- owners already thinking about succession
- shareholders comfortable with reducing personal ownership over time.
It does, however, require careful planning around control, valuation and future growth so it’s important that you engage with financial and legal professionals to take advice and to execute your plans.
Why timing matters
If this option is a good fit for you, you should take action as soon as you can before the deadline. Once April 2026 has passed, the same gift will not qualify for full relief if the value exceeds the new £2,5m cap.
For many families, these simple changes on their own will be enough to justify reviewing their structure now rather than later.
If you’ve already gifted or are planning to make a gift, the rules around the 7 years and the reliefs available will depend on when the gift was made (pre 30th October 2024 or after 30th October 2024 but before 5th April 2026) and when the person making the gift eventually passes away. As such, it’s important to get advice to understand exactly where you stand (or could stand in the future) if you have or are planning to go down this route
Other options to consider as part of wider planning
While transfers between spouses and lifetime gifting are often the starting point, it is not the only option available. Other approaches may be appropriate depending on your business, family and long-term objectives.
Share reorganisations
You may choose to reorganise your share capital to separate the current value of the business from its future growth.
In practice, this often involves restructuring the company’s shares so you as the founder retain shares reflecting the current value of the business. You then issue a separate class of shares that carry rights to future growth, which are then transferred to the next generation. These are commonly known as “growth shares”.
The benefit of this approach is that:
- the value built up to date remains with you, the founder
- any future increase in the company’s value sits with the new shareholders (usually the next generation)
- that future growth is removed from the founder’s estate while Business Property Relief is still fully available.
This type of planning is particularly relevant if you’re a growing businesses where a significant proportion of the value is expected to be created in the years ahead. It requires careful valuation and robust documentation, but it can be an effective way to reduce long-term inheritance tax exposure without stepping away from the business.
Use of trusts
Trusts continue to play an important role in succession planning for shares in trading companies, especially where you want to balance tax efficiency with control and protection.
Whilst many of our clients express concerns over using trusts, mainly borne out of news headlines about people in the news (usually for the wrong reasons) using trusts to “hide” assets, when structured correctly, you can transfer shares that qualify for Business Property Relief into certain trusts without triggering an immediate inheritance tax charge. You then appoint trustees to ensure the shares are managed in line with your wishes.
Such trusts can provide long-term protection for your family members, including younger or vulnerable beneficiaries. In these instances, the trust is then the shareholder, so issues and inheritance tax liabilities as a result of the death of a key person become less of an issue.
As things currently stand, you can transfer an unlimited amount of qualifying assets (i.e. shares) into a trust without triggering a tax charge providing everything is structured correctly. However, from the start of the 2026/2027 tax year, there will be a lifetime limit of £2.5m worth of qualifying assets that can be placed into trust with any excess triggering an immediate tax charge.
For those whose shareholdings are above the £2.5m allowance (or £5m for a couple where the shares are split between the couple), trusts can also help manage how and when value is passed on, rather than making outright gifts at a single point in time.
While trusts bring additional reporting and administrative responsibilities like registration with HMRC, a 10 yearly tax charge on the value of the assets in the trust (albeit at a rate significantly lower than inheritance tax rates), annual accounts to be prepared and filed with HMRC etc, trusts are still a useful option for you if you want to plan ahead of the April 2026 changes while retaining oversight of how the business is owned and controlled.
Spreading ownership across family members
As the new £2.5 million Business Property Relief allowance applies per individual, you may want to review how company shares are held within the family group.
This may involve:
- transferring shares to your spouse or civil partner as above
- bringing your adult children into ownership earlier as part of a wider succession plan.
The aim here is to ensure that more than one individual can potentially benefit from the £2.5 million allowance, rather than having all shares held by a single owner.
Any changes must reflect genuine commercial and family arrangements and be supported by proper governance. However, when aligned with the long-term direction of the business, this approach can form part of a sensible and tax-efficient ownership structure.
Life insurance as mitigation
It may be that transferring shares is not a desirable option for you and your business. Perhaps you want to retain full ownership and control, or perhaps the business isn’t ready for succession.
In this case, life insurance can be used as a mitigation strategy.
This works by taking out a policy to cover the expected inheritance tax liability on the value above the new £2.5 million cap. This policy is typically written in trust so the proceeds will fall outside of the estate on death.
Your family can then use the payout to meet the tax liability without requiring shares to be sold or the business to fund the bill
This approach doesn’t reduce the inheritance tax itself and the premiums for these types of policy can be expensive, but it can provide certainty and protect your business from disruption at a critical time.
The bottom line
If you have shares in a trading company in excess of £2.5 million and are concerned about succession planning, the time to act is now. If you fail to do so before the deadline, you could looking at hundreds of thousands, or even millions, of pounds in additional inheritance tax that someone somewhere will have to pay.
Many of the most effective options are only available, or most effective, if done before April 2026. Waiting too long will narrow your choices considerably.
Undertaking any of the routes referred to above will require formal tax and legal advice from your accountant and solicitor, or maybe even a formal tax clearance application to HMRC, to make sure everything is done correctly and other tax liabilities (such as capital gains or income tax) are not accidentally triggered.
If you need help with your succession planning ahead of the upcoming changes, our dedicated Corporate and Wills Trusts and Probate teams can give you the advice and support you need to gain peace of mind.
Call us on 0161 930 5151, email us at enquiries@gorvins.com or fill in the online form.