For M&A lawyers the focus on the 2024 budget was all around Business Asset Taper Relief (formerly known as Entrepreneurs Relief). The changes reduced the Capital Gains Tax discount available for entrepreneurs, impacting those wanting to sell their business. While this attracted much of the attention in the immediate aftermath of the budget the adjustment to inheritance tax on qualifying business assets over £1m value, which comes into effect April 2026 could have a more profound long term impact.
Previously IHT was not applied to qualifying business assets of any value (essentially investments in trading businesses), which allowed shares and assets in family businesses to be transferred free from IHT on death of a founder or shareholder. This benefitted the next generation, preserving intergenerational wealth and allowing for business continuity.
The new regime means this relief is capped. These shares would attract 100% IHT relief on the first £1m of value, then 50% relief for everything over £1m (an effective rate of 20% IHT). If the shares were valued at £5m, 20% tax would apply to £4m, leaving a liability of £800,000 (assuming no other issues or available reliefs). If several shareholders in a successful private company were involved in a fatal accident (or died within a short timeframe), this could impose a big financial pressure on their business/surviving shareholders. Bear in mind that unlike a sale situation, the business will be valued for IHT purposes, but no cash will be available to pay the tax.
This change has prompted many business owners to revisit their successions plans, for some this could mean the transfer of their wealth to future generations during their lifetime, for others bringing forward exit plans. Life cover may also be used to provide finance to meet the tax liabilities. The choice will depend on the skills and interest of family/management teams, but founders often find decision making around succession hard. While we all expect to live forever, this is something we cannot control and younger shareholders need to plan for succession earlier.
The change to IHT on business assets in April 2026 doesn’t just signal a change in tax—it sends a clear message: business succession is no longer a back-burner issue. The cost of inaction, both emotional and financial, has just increased.
Many business groups continue to campaign against the IHT change on business assets, but it would be wise to plan based upon the current rules.
DMH Stallard’s Corporate team are working more closely with our Wills and estate planning team to make sure our clients are able to plan effectively. Utilising directors loans to mitigate IHT is being used by some, and for generational family companies alphabet shares and growth shares can be used to bring family into the business earlier, while keeping control with the founder.
For a further discussion on the impact of the new Inheritance Tax rules on M&A, or for any other corporate law questions, please get in touch or call Jonathan Grant +44(0) 7912 087173.
