How the New IHT Rules Will Affect Business Inheritance and Lifetime Gifting

Note: This article has been updated to reflect the government’s announcement on 23rd December 2025 that the relief cap is to be uplifted from £1 million to £2.5 million.

If you own a business, the changes to Inheritance Tax (IHT) coming into effect in April 2026 could have a major impact on your estate. At Napthens, we’re helping business owners understand these changes and explore strategies to protect their businesses and family wealth. Acting early could make a significant difference.

From straight-forward gifting to trusts, FICs (Family Investment Companies) or a combination of the two, there are options available to you based on your specific needs.

As a family law solicitor myself, I was supported in the creation of this article by my colleague Robert Dobson, partner in corporate law.

Whilst this article will touch on the new UK IHT rules from 2026, we will focus more on the suitability and timing of lifetime gifting in the context of your business inheritance planning. For a more comprehensive breakdown of the changes themselves, explore our article here.

A Summary of 2026 IHT Changes

From 6 April 2026, Business Relief and Agricultural Relief, which have historically allowed qualifying business assets to pass to beneficiaries free of IHT, will be capped at £2.5 million.

This means that any portion of your business valued above this threshold will be subject to IHT at 50% of the standard 40% rate.

For example:

• Business value: £10 million
• £2.5 million protected under Business Relief or Agricultural Relief
• £7.5 million subject to 20% IHT
• Resulting tax bill: £1,500,000

This example does not consider personal nil-rate or residence nil-rate bands which would further reduce the total IHT payable.

Although HMRC allows payment in 10 interest-free instalments, without planning, this could create a serious financial strain on the business or the family.

Why Lifetime Gifting Can Help

One of the most effective ways to reduce future IHT exposure is through lifetime gifting. Gifts made before 6 April 2026 will still qualify for full relief, even if the donor passes away afterward.

Transitional rules do apply for gifts made between 30th October 2024 and 5th April 2025. In some cases, the new relief cap may apply if the donor dies within 7 years of the gift.

This window offers a valuable opportunity to structure gifts carefully, protect family wealth, and plan for the smooth transfer of your business.

Options for Lifetime Gifting

1. Outright Gifts
   Outright gifts are the simplest method, but they come with risks. Once transferred, you lose control of the asset. Family disputes, divorce, or financial problems for the recipient could put the business at risk.
2. Gifts to Trusts
   Trusts allow you to retain control as a trustee while passing benefits to family members.
   • Trusts created before the 30 October 2024 budget may offer multiple £2.5 million relief allowances.
   • For newer trusts, values are aggregated, but trusts still provide protection against disputes and unforeseen circumstances.
3. Family Investment Companies (FICs)
   Setting up a private company with different share classes can allow you to:
   • Keep voting control of the business
   • Pass on economic benefits such as dividends and growth to family members
   • Manage wealth transfer while protecting the business
4. Combining FICs and Trusts
   Increasingly, business owners use both trusts and FICs together. This approach allows:
   • Protection of assets against divorce or family disputes
   • Intergenerational transfer of wealth
   • Business continuity while mitigating IHT exposure

Whichever legal route is chosen, careful tax planning is also required to ensure a joined-up and holistic approach, as every business and business owner is unique.

Timing Is Everything

Early planning is crucial. Valuations, professional advice, and HMRC clearance may all be needed to ensure that you capture the maximum available relief. Acting now allows you to:

• Spread business value across family members
• Protect family wealth
• Avoid financial strain for beneficiaries
• Ensure a smoother transition of your business

Key Takeaways

• Business Relief will be capped at £2.5 million from April 2026, meaning larger businesses may face significant IHT.
• Lifetime gifts made before April 2026 can still claim full Business Relief.
• Trusts, FICs, or combinations allow you to retain control and minimise tax.
• Professional advice and early action are essential for effective planning.

Speak with the Experts

As a business owner with personal interests, a solution which incorporates both corporate law and wills, trusts and probate expertise will be required. Contact us today to speak with an expert.