Prior to the Autumn budget last year, there was intense speculation regarding changes to Capital Gains Tax and how this would impact Business Owners. Ultimately the increase was not as severe as some predicted. However, one area that could have a significant impact on their wealth were changes to Inheritance Tax (“IHT”) rates on business assets and pensions. Whilst there has been a lot of publicity regarding the impact on farmers in particular, the changes affect all business owners and its imperative that shareholders fully understand what these changes mean.
Shares held by business owners were subject to 100% IHT relief, but now from 6th April 2026, the 100% relief is halved to 50% for amounts above £1m.
For a business owner holding shares worth £3m the potential IHT liability increases from £0 to £400,000 from 6th April 2026. The equivalent increase for business assets worth £5m is from £0 to £800,000.
This creates a real headache for many beneficiaries immediately after the loss of a loved one. The tax must be paid relatively quickly but many will not have the liquidity to pay these sums from cash. This could mean that the business must be sold quickly and may not understand its true value or be prepared for the stress of a transaction process.
Paul Billingham of Knight Corporate Finance noted “whilst no one wants to think about IHT, especially before they have retired, business owners should consider getting an up-to-date valuation of their business in order to understand what the new liability could be, especially given the subjective nature of business valuations.”
In addition to this, pensions will no longer be deemed to be outside of estates from 6th April 2027. Many business owners have built up pensions through contributions from their businesses as part of their wealth planning. Billingham added “given these significant changes, we would also recommend business owners talk to a wealth planner who could advise on how to mitigate some of these changes”.
Ann-Marie Atkins, Managing Partner at wealth manager Evelyn Partners adds “These changes to IHT mean business owners should really start to think about planning far ahead of selling their business so that they can start to put some actions in place long before a sale. Applying foresight to planning and understanding the advantages and disadvantages of approaches will put you in the best place possible to navigate the new future of tax and let’s face it, liquidity if the worse happens and the tax man demands funds for Tax”.
Knight Corporate Finance is a corporate finance boutique providing advice to business owners and entrepreneurs in the technology sector and has completed over 200 transactions.
Knight Corporate Finance can provide a free valuation to any business owner in the technology sector and anyone wishing to enquire further can contact us at enquiries@knightcf.com
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