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, possible free of IHT on any value. After that, there will be an entry charge of 10% on amounts over £1m. For those considering long-term planning for their businesses, then, transfers of significant value into trust before that date should be looked at in detail. This can lead to multigenerational planning opportunities, and/or to prevent proceeds from the future sale of a business being subject to IHT in full.

A further aspect of the changes is that each individual will have a £1m tax-free BPR allowance. This is not transferable between couples, so as a first step, business owners will need to ensure that family members are able to take advantage of this.

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

The importance of structuring wills to ensure business assets are handled in the most tax-efficient manner has increased since these changes. In some cases it may be a matter of ensuring that the £1m BPR allowance is fully used, but the likelihood of shares being transferred during owners’ lifetimes means that wills may be more likely to need to dovetail with shareholders’ agreements (which take precedence). For some family businesses, outright gifts of shares via will may no longer be suitable given the need for flexibility over how and when to pay tax, so reviewing wills with an eye to enabling businesses to be managed and maintained in changed circumstances is an essential part of the toolkit.

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.

One more drastic 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.