The amount of money a family pays in tax after a business owner dies can vary by tens of thousands of pounds simply because of the way their will is drafted.
Jacqui Lazare, partner in our private capital team says there has been a rise in business owners changing the shape of their Wills in recent months with the new £2.5 million per person limit for 100% business relief commencing in April 2026. This cap is for the combined value of qualifying business and agricultural property with the remaining property only obtaining relief at 50%. Any unused portion can be transferred to a surviving spouse or civil partner to use on their later death.
“There is no doubt that one of the most important document for any business owner in their succession planning is their Will. Business owners need to ensure that at least one of their executors is someone who understands their business.
For family businesses, where perhaps a husband and wife and one or more children hold shares, clear instructions in a Will are vital. Certain types of assets attract generous inheritance tax reliefs and opportunities exist for couples to ensure that the benefit of these reliefs is maximised.
For business owners where the value of their home and their business tops £2 million, it is even more crucial to set out clearly where assets are to go after death. This is because estates over this value attract different tax rules under the Residence Nil Rate Band, which can potentially save £140,000 in tax for a couple.
Many families with a business use discretionary trusts to ensure that family members receive their inheritance rather than the taxman. Instead of leaving exempt assets in a Will to a spouse outright or to a life interest trust, the assets are left to a discretionary trust with chosen beneficiaries. This can help to lock in 100% business relief up to the £2.5 million cap.
This approach remans relevant and valuable. Such a gift would be free of IHT up to the new £2.5 million 100% limit due to business relief. Depending on the amounts involved, it can make a difference of many tens of thousands of pounds to the amount paid in tax. It may mean a change to shareholder or partnership agreements if more than one member of a family holds shares, but it can make a huge difference to how much is ringfenced for and passed on to future generations.
The new limit brings additional complexity to this area, meaning specialist advice should be taken. For married couples or civil partners, careful consideration should be given to how business assets are allocated between them. This avoids wasting the relief and can give a combined allowance of up to £5 million.“
We have recently launched our #GoodWill campaign, which aims to encourage people to take steps to safeguard their family’s future wealth by pledging that they will make a will this year.
Posted:
