Shareholder IHT changes: one year to act

Gifts of shares to the next generation are a key part of planning. Given the loss of control this can lead to, we can advise not only on the tax element but also on adjusting voting rights and restructuring share classes to manage this.

Transfers of shares to trusts are, until 6 April 2026, potentially free of IHT on any value. After that, the maximum value an individual will be able to transfer into trust without a tax charge arising will be £1.65m. For those looking at long-term planning for their businesses, transfers of significant value into trust before that date should be considered. This can lead to multi-generational planning opportunities and could prevent proceeds from a future sale of the business being subject to IHT at 40% upon death.

Gifts to younger family members can be protected by putting in place pre-nuptial or post-nuptial agreements, so that in the event of a marriage breaking down, the business is not damaged by a large number of the shares being transferred outside the family. Our matrimonial team can work alongside tax and corporate colleagues to deal with this challenge.

One aspect of the changes is that each individual will have a £1m tax-free BPR allowance. As announced, this is currently not transferable between couples, so as a first step, business owners should review their Wills to ensure that this allowance is being used and will not be lost. 

More generally, the importance of structuring wills to ensure business assets are handled in the most tax-efficient manner has increased since these changes. It remains critical to ensure that any transfer provisions in articles of association and shareholders agreements dovetail with the Will, to ensure that the shareholder’s wishes may be carried out. 

For some shareholders, a sale or transfer of their business may be impractical or undesirable so taking out insurance to cover a potential IHT cost is an option. This can cover business assets held on death or can cover a run-off period (usually seven years) for transfers of shares into trust or to other family members. We can assist in placing such insurance into a suitable trust, ensuring the policy proceeds are not subject to tax on death.

One more extreme option that may suit some business owners is moving abroad. As of 6 April 2025, foreign assets owned by people who have been non-UK resident for ten years fall outside the scope of IHT so for those willing to consider living elsewhere for ten years, restructuring their UK business so that it can be held through a non-UK vehicle may be worth considering. This can be a very effective tax solution but requires any business owners looking at it to consider their options in detail. Migrating the value of a business overseas is complex and is likely to involve taking advice (on both tax and governance) not just in the UK, but in one or more target jurisdictions as well.