ADVICE
Tax planning – Azets ’ North- East head of private client tax Jodie Barwick-Bell advises on inheritance tax changes coming into force next year .
PICTURE : CHRIS BOOTH
Don ’ t leave it too late to consider your best steps before new Inheritance Tax kicks in
SUCCESSION PLANNING
Jodie Barwick-Bell , North-East head of private client tax at Azets , advises 2025 is an important year for many business owners to review their tax and succession strategy , before the planned Inheritance Tax ( IHT ) business relief changes take effect next year .
She highlights that there are a number of options which could reduce the IHT exposure for business owners under the new regime .
Most business owners know significant changes to Inheritance Tax are planned from April 2026 . What do the changes mean for private business owners in our region ? Are there strategies to reduce the IHT exposure ?
Summary of the changes From April 6 2026 , the rate of IHT payable on qualifying business shares or assets valued over £ 1m will effectively be 20 %.
For example if a single person dies today owning shares in a trading business worth £ 2.5m , the IHT payable will be nil .
However , if they die on or after April 6 2026 , the IHT payable by those inheriting the shares will likely be £ 300,000 (£ 2.5m minus £ 1m @ 20 %).
The new £ 1m exemption is a lifetime maximum . The amount available on death will be reduced by gifts of business assets in the seven years before death , and transfers into trust . Any unused £ 1m exemption will not be transferable between spouses .
Trusts potentially have a £ 1m allowance too , but there are restrictions , and the Treasury is consulting on the implications of these changes for trusts .
How can the IHT exposure for business owners be reduced ? There are several planning options with potential to reduce IHT exposure , including in high-level terms :
> Married couples can ensure both spouses use their £ 1m exemptions .
> Parents can consider making their children shareholders .
> Shares could be transferred into a family trust .
> Should key management be incentivised by tax-efficiently giving them shares / share options ?
> The impact of minority discounts on probate valuations could help .
> Restructuring the shareholdings in trading companies to include “ growth ” or “ flowering ” shares is a longer term option . Wider taxes should be considered before embarking on IHT planning . For example will there be any Capital Gains Tax ( CGT ) implications on lifetime transfers and does Stamp Duty Land Tax / Stamp Duty need to be considered ?
A further important tax point needs thinking through : if gifts of business assets are made during lifetime , the family will lose the benefit of the CGT free uplift in base cost on death . This represents a long-term CGT saving of up to 24 % of the inherent gain . Does the benefit of the IHT saving outweigh the potential CGT saving ?
Non-tax issues should also be considered – the impact on family dynamics , marital breakdown exposure and the risk that diluting the controlling shareholding potentially impacts the business . Also , who would the dividends now be paid to ?
For those in good health , IHT insurance may be an easier and affordable option worth considering .
When should you act ? The IHT changes are not yet legislation and so waiting until the position is certain before implementing changes makes sense .
So don ’ t panic and rush it , but also don ’ t leave it too late . Decision-making about succession planning takes time to think through and get comfortable with – it can be emotive too .
Ideally , appoint your advisers and get meetings in the diary to begin the process over the spring and early summer .
Who should you get advice from ? Ideally a personal tax specialist , a private client lawyer and a financial planner .
You want an innovative team who will challenge you , asking you “ what if ?” questions , ensuring you have thought through your decisions .
There is so much to think about that it would be easy to put this issue on the “ too hard ” pile and do nothing .
I strongly recommend business owners facing this issue appoint experienced advisers to help them navigate their way to the right solution for them .
As hard as it may be , by not taking action this year , you could miss out on planning options only available before the new rules comes into force .
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