Rachel Reeves’ first Budget on 30 October 2024 announced significant tax changes including to Business Property Relief upon which many family businesses have relied as part of their succession planning.

With the planned restriction of the relief from April 2026 onwards, business owners should revisit their succession strategy.

Succession planning after Budget 2024: time for a rethink?

While much attention since the Budget has been focused on the implications for farming, there are wide-ranging implications for trading businesses too.

The current position is that Business Property Relief (BPR) allows qualifying assets such as shares in unquoted trading companies to benefit from up to 100% relief from Inheritance Tax, provided the asset has been held for at least two years at the date of death. The maximum value of the relief is uncapped so whether the shares are worth £1 or £100 million they would still benefit from the relief in full. This makes it an important relief for family businesses.

Moreover, under current rules it may be beneficial to retain ownership of a family trading company, only passing it to the next generation on death as the shares are uplifted to their market value at the date of death, meaning that the next generation acquires them at a higher base cost, reducing the Capital Gains Tax liability on any future disposal.

However, from April 2026 onwards, the total combined value of BPR and APR, will be capped at £1 million, with any excess only benefiting from 50% relief.  As a result, retaining shares until death may no longer be the best strategy for succession planning.

Take action now

While the changes do not take effect until April 2026, it is important to ensure that the impact is understood, planned for, and action is taken where appropriate. In particular:

1. Revisit existing succession planning strategies, particularly if they rely on the availability of BPR.

2. Review Wills to ensure that they make best use of the available exemptions and reliefs. The new £1 million BPR limit will not be transferable between spouses so it may be appropriate to leave assets to other family members or to a trust to maximise the relief available.

3. Consider gifting shares to the next generation. Gifts of assets that would qualifying for BPR will generally qualify for Capital Gains Tax Hold-over Relief so that they can be passed free of Capital Gains Tax. Provided the donor survives at least seven years from the date of the gift, it will fall outside of their estate on death.

4. Look at the potential transfer of shares into trust for the benefit of future generations, particularly before the new rules take effect from April 2026.

5. Review whether you have adequate life insurance cover to settle any Inheritance Tax liability that might arise on the shares (or, if you gift shares, any Inheritance Tax liability that arises if you die within seven years of the gift).

6. Consider a sale of the company to the next generation. While any consideration will be within your estate for Inheritance Tax purposes, it is easier to plan, including make gifts, with cash proceeds rather than with shares.

7. Where the next generation does not have the interest or skills to take on the business, consider a sale, whether a trade sale, management buyout or disposal to an employee trust.

Always take professional advice that relates to your personal circumstances prior to making any decisions.   Members of the specialist team at RPG are always happy to have an initial discussion free of charge.