Succession planning for business owners: gifts, growth shares and wills
Sponsored feature | Laurence Evans, partner, HCR Hewitsons
The 2024 budget introduced a number of tax changes which will impact the long-term planning of the circa 4.8m family-owned businesses in the UK.
In particular, from 6 April, 2026, 100 per cent Business Property Relief from inheritance tax (IHT) on qualifying assets, including unquoted shares in family companies, is scheduled to be limited to the first £1m of business assets. Thereafter, it will reduce to 50 per cent, leaving business assets in excess of £1m susceptible to a 20 per cent IHT charge. Similar changes are to be made to Agricultural Property Relief.
The timing does, however, afford business owners a window of opportunity to develop a succession plan best suited to their needs.
Options to consider include:
Gifts – with the seven-year gifting rule in relation to IHT remaining unchanged, and holdover relief still available, passing on business assets sooner could be a good strategy where the circumstances are right.
Freezer/growth shares – ‘freezer’ shares can be a useful mechanism for sheltering individuals from IHT on future growth in the value of their business, with the value of the older generation’s shares effectively frozen at an agreed fixed price.
Meanwhile, new ‘growth’ shares are issued to the family’s younger generation, and this class of share would typically have zero, or near to zero, value on the date of their issue but benefit from future increases in the value of the company. If done correctly the implementation of freezer and/or growth shares should not result an IHT, capital gains or stamp duty charge.
Insurance – in some cases a significant IHT liability may now be unavoidable. A fixed-term or whole life insurance policy could make sense, particularly in the short term while we wait for these changes to bed in, or perhaps be reversed.
Wills – married business owners should review their wills to ensure that reliefs are being fully utilised. This is particularly important given the £1m allowance for Business Property Relief will not be transferrable between spouses, at least under current proposals.
Outright sale – of course for anyone considering a potential sale of their business, they may wish to accelerate those plans, taking into account additional increases to capital gains taxes and employer’s NI contributions from this April. Employee ownership trusts can also facilitate a tax-efficient exit.
For more information, contact Laurence Evans, partner, Corporate team on 01223 532710 or 07584 015571.
Visit hcrlaw.com.
