Business owners have been warned about the importance of ‘futureproofing’ their businesses to ‘mitigate increased inheritance tax liability’ due to an overhaul of Business Property Relief (BPR).
Harriet Jones, corporate law specialist at regional legal and professional services business, Knights, has urged business owners to undertake a review of their succession planning in light of drastic changes to inheritance tax rules for BPR, which come into effect next month.
From 6 April 2026, only the first £2.5 million worth of qualifying business and agricultural assets will receive 100% inheritance tax relief, which under the current rules is uncapped. This means that while beneficiaries of a will shall receive 100% inheritance tax relief on any qualifying assets up to £2.5 million, they will be liable to pay effectively 20% inheritance tax on any qualifying assets exceeding the threshold when the assets are transferred.
While this does mean the scope to reduce future tax liabilities has been limited by the introduction of the £2.5 million cap on 100% relief, Harriet says ‘it’s more important than ever before’ that owners have plans in place to shield their estates from a future tax bill and ‘futureproof’ their businesses for the next generation.
Harriet Jones, Corporate Partner at Knights’ Uxbridge office, said:
“These changes have sharpened everybody’s mind to think about all of the implications of being a business owner and whether you’ve got the next generation sitting ready to take over from you, and whether they should be shareholders now.
“It’s not just about the here and now, it’s actually about thinking more long term; the next five to ten years.
“Now is the ideal time for business owners to have a think about what their long term plans are and have a chat with the people that they think would take over the business. That could be children, more distant relatives or it could be a management team, but whoever it is now is a great time to start talking about what retirement could look like and how to get there.
“Even if you’re still in the fortunate position where you’ve got 20 years ahead of you, and your too passionate about your business to think about retirement just yet, it’s still not a bad time to think ‘what does the next 20 years look like?’.
“No one knows what is around the corner, so the earlier you start doing this planning – and you might not necessarily conclude you need to do anything today – the better you have future-proofed your business, and you never know, the conversations might also energise your successors about their role in the business.
“Some of the best entrepreneurs often think about the business first and themselves second (if at all). So, my top tip is just take some time to think about what is actually best for you, for your family and whether you have done the best that you can to plan for the future and the next generation.”
