By Tim Collyer, Chartered Financial Planner
Rachel Reeves’ latest Budget has thrown a curveball at family business owners across the UK.
If you own one, you might already be feeling that creeping sense of dread. And let’s be honest—it’s justified. The Labour government’s planned changes to inheritance tax (IHT) could make passing down your business much more expensive and far more complicated.
Right now, business relief on IHT lets you pass down qualifying business assets with up to 100% relief. That’s a game-changer for family businesses. If your company is worth £5 million, your family could inherit it without a hefty tax bill. But from April 2026, the rules are set to change.
What are Labour’s inheritance tax changes?
Business relief will be capped at £1 million per individual, and anything above that will be taxed at 20%*. So, that same £5 million business? It could leave your family with an £800,000 tax bill – and with a bill that size, your business may have to be sold or broken up to pay it.
In that scenario, things get even worse. You are likely to get a lower value for the business in any sale, leaving you with a full IHT bill but with less funds to cover it. That means no more family business, potential staff job losses, and all the other misery that comes with such a situation. That may sound like doom-mongering, but it’s all too plausible a scenario for any family business that doesn’t enlist proper financial planning.
Not exactly the kind of legacy you want to leave behind.
What can you do?
The short answer – act now. If succession planning was on your to-do list but kept getting pushed to “someday,” that day has arrived. With the seven-year rule still in place, gifting business assets sooner rather than later might be your best shot at minimising tax exposure. Simply put: if you pass down shares and survive seven years, they won’t be counted toward IHT. Waiting too long, though, could be a costly mistake.
But tax isn’t the only thing to think about. Let’s talk about people. Succession planning isn’t just about shifting ownership—it’s about making sure the next generation actually wants to take over. We’ve seen it time and time again—founders reluctant to hand over the reins, only for their business to end up in limbo when the inevitable happens. If you want a smooth transition, involve your successors now. Ensure they’re equipped, invested, and genuinely ready to lead.
Then there’s the legal side of things. Have you considered what happens if the person inheriting your shares goes through a divorce? Or files for bankruptcy? The last thing you want is your company being split up in a courtroom. Ironclad shareholder agreements, family constitutions, and legal safeguards can protect against these risks. It’s all about future-proofing what you’ve worked so hard to build.
How else can I plan ahead to mitigate against inheritance tax?
If the new tax rules don’t fit your plans, other options are worth exploring. Some business owners are shifting to family investment companies, trusts, or even employee ownership models to sidestep potential pitfalls. The best solution will depend on your unique circumstances, which is why professional advice is key.
Look, we get it – Labour’s inheritance tax changes aren’t the news family businesses wanted. But you’ve built something strong, and that strength will carry you through this, too. What’s important is taking control now, rather than scrambling when the new rules kick in.
At Montgomery Charles, we’re already helping business owners find smart, tailored solutions to protect their legacy. If you’re feeling overwhelmed, let’s talk. With the right strategy, you can make sure your business stays in the family—not in the hands of the taxman. Because, at the end of the day, you should be the one deciding what happens next—not the Treasury.
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Any money invested carries an element of risk and you are not guaranteed to get back the money you invested. This article does not constitute advice and you should consult your financial adviser prior to any action.
*Figures correct as of February 2025
