New inheritance tax rules driving death tax disruption fears - claim
A fear of major disruption resulting from proposed increases in inheritance tax (IHT) that are set to be introduced has sparked major concerns for business owners.
Many are concerned about how they and their businesses will be affected by new rules being introduced from 6 April 2026 for Business Property Relief (BPR) and Agricultural Property Relief (APR).
The proposed new regulations are causing widespread anxiety about funding of unexpected tax liabilities and triggering a heightened risk of rushed or inappropriate decisions by business owners to sell or transfer ownership, a leading business tax adviser at Azets in Central & West is warning.
Currently, Agricultural Property Relief allows farmland and related buildings to qualify for up to 100 per cent relief from IHT, but from 6th April 2026, the relief is set to be capped at £1 million per estate. Any excess will be taxed at 20 per cent (half the standard IHT rate).
Business Property Relief, which currently offers up to 100 per cent IHT relief on qualifying business assets, such as shares in unquoted trading companies, is proposed to change with a new allowance providing up to 100 per cent IHT relief on the first £1m value of qualifying business assets with any excess value taxed at 20 per cent (half the standard IHT rate).
The £1m allowance is per person, so if individuals have Agricultural Property and Business Property, the £1 million allowance is proportionally allocated between the different assets.
Amy Buckley (pictured), Azets’ head of tax for the Central & West region, said: “The personal impact of losing a family member added to the commercial impact for the business makes this a difficult time for any family run business, adding the extra burden of planning for increased taxes on death makes this even more challenging.
“Historically, it was possible to pass businesses down to the next generation free of IHT. These changes mean that businesses now need to plan for potential IHT liabilities.
“Following this significantly increased tax burden, there is the added risk that crucial decisions could be rushed ahead of 6 April next year, which are not in the best interests of the business or their owners.
“Our advice to any business owners worried about the new IHT rules and their impact is to seek professional advice as soon as possible.”
To illustrate the potential impact of the new rules, Amy cites an example of the financial costs of the proposed change: “Take a company owned by a brother and a sister in their 50s that makes £2M profit per year – the bulk of the cash is reinvested annually to improve efficiency and competitiveness.
“Their business is worth £15M on paper, including these invested reserves, not drawn down by the owners.
“One of them tragically dies in mid-May 2025. The shares fully qualify for BPR, and so when they pass to the other in their will, no tax arises.
“The business is left shocked by the awful event but trades on. Take the position mid-April 2026 with the same circumstances. The value of the shares on passing is £7.5M, there is a £1M allowance, and the rest gets taxed at 20 per cent, with the IHT bill at £1.3M. The problem now is – who funds the tax bill?
“Owners aware of this risk are now looking at their options to protect their legacy businesses from failing when they are no longer here. Many are taking out life insurance to cover the risk of a cash funding crisis arising from the obligation to pay HMRC the IHT on death.
“Others are thinking of a lifetime gift to pass the business down to the next generation now, as opposed to as a provision in their wills. Every business owner’s circumstances are different and as such planning for this liability will need to be bespoke.”
