For many years, we have stressed the advantages of taking tax advice long before selling a business. It is easy for personal advice to be overlooked when negotiating a sale, but good advice could achieve significant tax savings.
A key objective is to prevent the proceeds of the sale from incurring inheritance tax (IHT) at 40% upon death.
Where business owners intend to 'sell up' in future, and do not need all the proceeds, consider making gifts of shares or business assets before the sale; they should qualify for Business Property Relief (BPR) from IHT. Where there is a desire to preserve substantial wealth over generations, trusts are often appropriate.
A lifetime charge to IHT generally arises on most gifts to trusts, but not in the case of qualifying business assets, like private (trading) company shares. Instead, BPR can relieve the full value from IHT. When the shares are later converted to cash within the trusts, charges to IHT begin to apply. However, this is at considerably lower rates than the 40% IHT 'death charge'.
This kind of planning is still open to business owners seeking to make large transfers of qualifying business assets. But that will only be possible before 6 April 2026. From that date, mitigating IHT on valuable business assets will become significantly more difficult.
The substance of our message therefore remains unchanged, though the approach of April 2026 renders it more critical. The best way to mitigate the impact of IHT is to put a plan in place early. That includes understanding the impact of the proposed changes, and taking sensible steps in the immediate term, including preparing a will which provides maximum flexibility for the distribution of your assets on death. Doing only that could save you hundreds of thousands of pounds.
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