If you’re a business owner with shares in a limited company, Inheritance Tax (IHT) could significantly impact what your heirs inherit. Without careful planning, your family may face a 40% tax bill on privately held shares, which may be illiquid and difficult to convert into cash.
Fortunately, a private limited company offers flexible, tax-efficient options for passing ownership to future generations. Current tax reliefs such as Business Property Relief (BPR), nil rate bands, and trust-based structures help minimise or eliminate IHT on company shares. However, new rules from April 2026 will significantly reduce BPR reliefs on estates over £1 million, so early action is critical.
This article shows how you can use thresholds, reliefs, and other strategies to reduce your IHT bill and keep your company intact for future generations.
When you pass away, IHT of 40% must be paid on your property, money, and possessions, including any limited company shares you own. This means passing company shares to your family members could trigger significant liabilities.
Private company shares are usually illiquid, making it difficult to pay the IHT without selling part or all of the business.
You can transfer shares to your heirs as a gift while you’re still alive, or as part of your will.
When you die, your personal representative (your will executor or estate administrator) will pay any IHT that’s due before giving the inheritance to your heirs. When assessing the worth of shares in your estate, they must use the open market value , not the nominal value.
Your heirs may have to pay the tax, rather than your representative, if:
Worried about how much IHT your shares might attract? There are many ways to avoid or minimise the tax.
Typically, IHT is not payable if:
As these exemptions are transferable to spouses and partners, widows and widowers can receive reliefs worth £650,000 on assets like shares and possessions. If their estate includes the family home, this increases to £1 million. You will be charged 40% IHT on the portion of your estate that exceeds these thresholds.
The 2025 Budget extended these nil rate bands to at least April 2031.
If you gift assets such as unlisted shares, you receive taper relief that increases gradually from the third to the seventh year after the gift. If you die seven years or more after the gift, it becomes completely free of IHT. However, ensure that handing over shares doesn’t compromise your business’s control, governance, or long-term goals.
Business Property Relief (BPR), also known as Business Relief, lets families pass their businesses through the generations by exempting gifted or inherited shares from IHT.
You can claim the relief provided it’s a private business, not listed on a stock exchange as a public company. You must have owned the shares for at least two years before you die. Shares in Alternative Investment Market (AIM) listed companies also qualify.
Your personal representative will claim BPR by completing Form IHT400 and schedule IHT413 .
You cannot claim BPR if your company:
If part of a non-qualifying asset is used in the business, that part might qualify for BPR. For example, if you use one room in a building as a shop and the other rooms as your home, the shop will qualify.
This valuable tax break currently applies to 100% of shares. However, from April 2026 (at least until April 2031), only the first £1 million of assets will qualify for 100% BPR. Any excess will receive only 50% BPR. This change could expose shares in many businesses to a substantial IHT liability.
Ryan Bevan, Head of IHT and Trusts at accountants BKL, says some of his clients are gifting shares now in advance of the changes. “If they die before seven years have elapsed from the gift, the BPR is revisited and allowed, provided the recipients have kept the shares,” he says. “If the death is after 5 April 2026 and within seven years, the new limits will apply.
You also need to consider the Capital Gains Tax (CGT) implications of gifts, as they are treated as disposals. Younger shareholders with holdings worth more than £1 million may consider staggered gifting over several years.
Ryan highlights that if you gift shares to a partner and they keep the shares, BPR may apply to them when they pass away. If they sell them, this relief will be lost. Sale proceeds in their estate will be liable to IHT. Generally, any shares left to charities will also be exempt.
Because the incoming £1 million limit on 100% BPR is not transferable between spouses on death, some clients are also now dividing ownership of their shares, he adds. This way, you can ensure that both civil partners or a married couple receive the £1 million relief, protecting a total of £2 million.
BPR is applied to qualifying assets in addition to the NRB and the RNRB exemptions. BPR reduces the value of the asset. NRB and RNRB then apply to the remaining estate.
Below are three examples illustrating how IHT applies based on estate value, share ownership, and changes to BPR rules.
The estate, which includes company shares, is worth £200,000. This is below the NRB tax-free threshold of £325,000, and there’s no IHT to pay.
The estate, which includes shares but no property, is valued at £500,000. The tax-free threshold is £325,000, so the IHT will be 40% of £175,000 (£500,000 minus £325,000), equalling £70,000.
The estate consists entirely of unlisted shares, valued at £2 million. Previously, this would have received 100% BPR with no IHT. But since April 2026, £1 million of it will only receive 50% relief. That leaves £500,000 liable to IHT, and a bill of £70,000 after applying the NRB, with no IHT to pay.
With upcoming BPR changes, many company owners are exploring complex structures – like trusts and Family Investment Companies (FICs) – to reduce their IHT on shares.
Transferring shares into a trust during your lifetime removes them from your estate, making them IHT exempt, while allowing you to retain some control over the assets. You’d need a lawyer to advise on what is appropriate for your situation and set up the trust.
FICs enable family members to hold shares in an entity, thereby reducing their direct ownership of assets. These structures allow gradual wealth transfer, potentially reducing the value of your estate for IHT while protecting family assets.
These planning vehicles are especially useful if your business is growing rapidly and you want to secure long-term succession while reducing your estate for tax purposes.
When it comes to succession or estate planning, getting started on the right legal terms is essential. The structure and status of your business today can significantly impact how smoothly it can be passed on.
By selecting the right legal structure from the beginning, you protect your assets and guarantee a smooth transition for future generations. Our company formation packages are designed to ensure compliance and provide peace of mind, supporting your long-term goals.
Don’t leave your legacy to chance. Start strong with the right structure and compliance support from Rapid Formations .
You do not pay CGT on assets you give or sell to your spouse or civil partner, unless you separated and did not live together at all in that tax year, or you gave them goods for their business to sell on. Your spouse or civil partner may have to pay tax on any gain if they later the asset.dispose of the asset.
The IHT benefit of an FIC comes from the founder retaining control through a Director’s Loan, which, as a net asset, has an effective value of zero. If you then gift shares in the company to your children, they will have a zero value, and there will be no IHT liability. Your beneficiaries can then benefit from any future investment growth with no IHT, as it will be outside your estate.
An FIC can operate similarly to a trust. With a trust, founders hold legal ownership and decide when to distribute assets to beneficiaries. With an FIC, you, as the founder, can keep control via the company’s share structure (for example, voting shares) and articles of association. At the same time, the next generation receives the financial growth via growth shares.