the donor survives seven years. But, timing is everything: gifts made after 30 October 2024 but before April 2026 may still be caught by the new rules if the donor dies after the implementation date. If so, relief drops to 50% on excess value. Early, considered transfers – guided by professional advice – can maximise available reliefs and reduce long-term exposure. 4)Consider pensions . Many family businesses will have pension schemes (perhaps SSAS arrangements) which are currently exempt from IHT when a member dies. But, another key change announced in the Budget is that from April 2027, undrawn pension funds will be included in the IHT net – at 40%. This fundamentally alters the role of pensions in succession planning. Previously, pensions were a tax- efficient way to hold investments which could also be efficient from an IHT perspective. Now, they could face a combined 67% tax hit when inheritance and income taxes are applied. The change particularly impacts those over 75, where both IHT and income tax will bite. Given the long-term nature of pensions, early planning is crucial – the decisions made now will impact wealth transfer for decades. 5) Consider how you will pay. Remember that an IHT liability on any deceased shareholder is primarily a liability of the deceased person’s estate, not a business liability. But, it is important to consider how practically that IHT liability could be payable. Businesses, especially those which are asset-rich but cash-poor must assess their ability to fund future IHT liabilities without jeopardising operations. If a business owner dies post-2026 with insufficient planning, successors may be forced to sell assets, take on debt, or draw heavily from retained profits. These are rarely optimal outcomes. Worse still, holding excessive cash reserves to pre-empt liabilities could backfire. Under current rules, surplus
cash may be treated as an “excepted asset,” excluded from BPR and fully exposed to IHT at 40%! A cashflow strategy should include stress-testing different funding scenarios (life insurance proceeds, shareholder buybacks, dividend planning – including calculating the cost of declaring a non-routine dividend) while also considering the impact on operations and investment. Remember too that, generally speaking, IHT is due within 6 months from the end of the month of death – therefore having a plan in place as soon as possible to ascertain how to pay is sensible. 6)Has a shareholder died in the last two years? if so, take advice immediately. In this scenario it may be beneficial to consider a Deed of Variation which can apply whether a business owner has died with a Will or intestate. In very basic terms a Deed of Variation can re-write for tax purposes what happened on someone’s death allowing you to redirect assets to other beneficiaries. For example, a shareholder may have died recently leaving all of their estate (including their shares) to their spouse. In this case no IHT would be payable due to spouse exemption and the assumption may be that when the spouse dies in the future, no IHT would be payable on those shares either because 100% BPR would apply. But, given the Autumn Budget, that will no longer be the case. If the spouse dies post April 2026, an IHT liability may be coming. Re-writing the deceased persons Will to leave the shares not to the spouse but perhaps the children or a trust, may be more tax advantageous. There are various criteria to do an effective Deed of Variation, and importantly there is a two year deadline from the death. Therefore, tax and legal analysis should be sought within that two year window.
While it is important to plan for the changes in April 2026, it is equally important to have very clear goals and not to allow the tax tail to wag the dog. If you were planning to sell the matter? On the other hand, if your goal is to build a business for future generations, act now to ensure it is protected. business, do the changes to BPR
Our thanks to FBUK Partners Farrer & Co, Clarion and PwC.
This article shoud not replace you seeking professional advice.
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