Succession planning is a fundamental component of managing a family business, yet recent tax changes, particularly those announced in the Autumn Budget, have introduced new complexities.
The introduction of a £1million cap on assets eligible for 100% Business Property Relief (BPR) or Agricultural Property Relief (APR) requires family businesses to rethink their strategy to ensure long-term sustainability and minimise tax liabilities.
Thrings’ Succession and Tax team break down how family businesses can implement ways to alleviate the impact of these tax reforms:
Transferring assets
As the Chancellor's proposed IHT changes come into effect in April 2026, early succession planning will become even more critical. Transferring assets well before death is a tried-and-tested strategy that allows families to benefit from the seven-year rule related to potentially exempt transfers (PETs). Under the PET regime, gifts made more than seven years before death are exempt from IHT, offering a potential tax-saving opportunity.
However, careful planning is essential. The current owners must ensure they retain sufficient income and capital to meet their needs while ensuring the transfer does not violate the Gift with Reservation of Benefit (GROB) rules, which prevent individuals from reducing their estate’s value for IHT purposes while maintaining control over the gifted assets.
It’s also important to note that anti-forestalling measures will apply to lifetime transfers made from 30 October 2024, so that these will be subject to the new rates of tax should the donor pass away within seven years of making the gift, if this occurs after 6 April 2026.
Understanding BPR and APR
BPR and APR are reliefs that reduce the taxable value of business and agricultural property for IHT purposes. When applied, they can reduce the IHT due at a rate of 100% or 50%. This can be particularly beneficial for family businesses, but the recent tax reforms now limit 100% relief to assets worth up to £1million – the value of all other qualifying assets will be subject to IHT at the rate of 50%.
The role of trusts in succession planning
Trusts remain a powerful tool for managing IHT liabilities. By transferring BPR and/or APR-qualifying assets into a trust, family businesses can potentially reduce the impact of these reforms and spread the distribution of assets over time.
Transfers into trusts are classified as chargeable lifetime transfers and are subject to an immediate charge to IHT at the rate of 20% to the extent that the value of the assets going into the trust exceed £325,000 (the Nil Rate Allowance) and do not qualify for any other relief. Additionally, assets in a trust are subject to a ten year charges to IHT on the value of chargeable assets which exceed the Nil Rate Allowance. Currently, assets qualifying for BPR or APR at 100% are exempt from the ten year charge. However, with the new tax rules, assets worth over £1million will now attract an IHT charge at 50% of the applicable rate, which still represents a significant saving compared to assets in an estate at death.
It may be advisable for family businesses to transfer qualifying assets into trust before the April 2026 deadline to take advantage of full BPR or APR relief on the transfer. As with lifetime transfers, care must be taken to avoid the GROB rules, ensuring that the transaction does not jeopardise the desired tax benefits.
Reviewing Wills and estate plans
Estate plans should be reviewed regularly to ensure they align with evolving laws and the family’s wishes. The introduction of these new IHT rules will have implications for how assets are transferred, and updating your Will is essential to avoid unintended tax consequences.
For example, many Wills direct assets to the surviving spouse to benefit from the IHT exemption for interspousal transfers. However, the £1million threshold for BPR or APR may not be transferable to the surviving spouse if unused, meaning there may be an opportunity to transfer qualifying assets to other beneficiaries or a trust to ensure that the allowance is fully utilised. If this isn’t done, it will potentially result in a higher IHT bill overall.
Life insurance
As inheritance tax concerns grow, life insurance is becoming an increasingly important strategy for family business owners. When written into trust, life insurance proceeds are excluded from the individual’s estate for IHT purposes, allowing the next generation to pay the tax liabilities without disrupting the business.
This can help family businesses continue to operate smoothly while addressing the financial obligations triggered by IHT. It’s worth discussing your life insurance needs with a professional advisor to ensure it integrates seamlessly with your overall succession plan.
Professional guidance
The proposed changes to IHT are likely to prompt many family businesses—particularly those with substantial assets—to reconsider how they pass their business on to future generations. While these changes may seem daunting, careful planning and open conversations can mitigate their impact. The key to success is to start planning early and thoroughly consider the full implications of the new tax rules.
Thrings’ Private Client lawyers are experts in supporting individuals and families with a range of personal matters that are important to you. Whether it relates to a family business, land or private wealth, their expertise is there to help plan ahead in all areas ranging from succession planning and trusts, to wealth management and Wills and probate. To find out more, please get in contact.
