Business Property Relief changes and your business.

Have you considered how changes announced in the October 2024 budget to Business Property Relief (BPR) may impact on your plans for succession or selling your business in the future?

With effect from 6  April 2026, businesses worth less than £1m will qualify for full BPR, whilst those valued above £1m will receive a reduced 50% relief.  Agricultural assets will potentially be subject to Inheritance Tax at a rate of 20%.

A worst-case scenario for those business owners who don’t plan for this change now could be leaving their successors in the business, including children or otherwise, faced with having to sell all or part of the business, its assets, or the agricultural land, or otherwise breaking up the business to pay the tax and IHT liability.

Considering how this may affect you now is sensible not just for yourself but for the future stability of the business you have worked so hard to build.

The best place to start is getting an up-to-date professional valuation of your business to better understand the parameters you are working with and speaking with a legal advisor about the structure and ownership of the business itself. Depending on your needs and wishes for the future, your legal advisor will be able to guide you through options and best practice.

If you are the sole owner of your business, you may want to consider adding others like your spouse or children, so that the value of each shareholding is under £1m.  But even this can be complicated and should be done with the guidance of a professional, as the nature and structure of your business will dictate what options you have.  For example, if you are the sole shareholder of a company limited by shares, you could transfer part of your shareholding, or you may be better suited by issuing new ones.

Whether and how to go about re-organising your business will likely be governed by any constitution or other agreements in place, such as  Articles of  Association and Shareholder Agreements for companies, or Partnership Agreements or Rules/Constitutions for partnerships or unincorporated bodies. It’s important to ensure you comply with the framework in place so that your successors’ claim to ownership cannot be disputed and you do not accidentally fall foul of legal requirements. If you do not have such framework documents, it may be time to look at getting them prepared to future proof your business.

Regardless of how you choose to proceed and in addition to considering how your business is set up, there is the added complication that gifts you give during your lifetime must be considered as part of your overall estate and IHT planning, as they will only be free of IHT as long as you survive for at least seven years after the gift has been awarded.

Your tax advisor will be able to discuss payment options to cover an IHT liability in the future, such as selling assets, a life insurance policy or increased dividend payments, and you should consider your options carefully to find a solution which is right for you.

Payment of  IHT will be spread over ten annual instalments, so facing the potential issues now will make it even easier for your beneficiaries to comply with their tax obligations within a prepared cash flow plan and well-structured business.

If you would like to discuss succession planning for your business in light of these changes, please get in touch with our team.