LIBF-Chartered financial adviser Jenny Loftus discusses estate planning tools for family business owners…
The financial advice industry has recently seen a surge in revisions to the existing financial plans of family business owners and SME owner-operators. This is in response to the significant changes impacting relief on business property and agricultural property inheritance tax (IHT) liability as announced in the Labour government’s autumn Budget in October ’24.
In today’s rapidly changing tax landscape, financial planning, including succession planning, is imperative for family-run and owner-operated businesses of any size.
Despite this, forward planning is often deprioritised in favour of day-to-day management – until it is too late.
More than two-thirds (69%) of family business owners lack a succession plan, thus leaving no clear directives on the business's future operations or leadership after their death.
Only around one in three (32%) of family business owners in the UK have an up-to-date will.
(Source: international-adviser.com)
“Taking early action can help family business navigate the new tax landscape effectively.”
For business owners keen to navigate the new tax landscape effectively, there are a number of strategies which may be employed both legally and ethically.
By taking action early and working with a professional financial adviser, you can reduce the tax liability of your estate and lay firm foundations for both the ongoing success of your business and your family’s financial future.
Business Relief, Agricultural Relief and other allowances
Despite a change in criteria, Business Relief (BR) and Agricultural Relief (AR) still play an important role in estate planning. From 6 April 2026, the full 100% relief for BR and AR will be capped at £1million of combined qualifying assets; assets exceeding this threshold will receive a reduced relief rate of 50%, significantly altering their impact on high value estates.
Business owners should review their estate plans to assess how the new £1 million relief cap affects their IHT exposure. Key actions include restructuring assets, considering lifetime gifting, exploring the use of trusts or family investment companies, and seeking professional financial advice to ensure maximum tax efficiency under the updated rules.
Restructuring & Lifetime Gifting
Restructuring, for example transitioning from a sole trader to a limited company, may present a promising route to help optimise tax position. It may also be possible to restructure assets and consider diversifying across alternative investment vehicles to reduce taxable estate values.
Lifetime gifting involves making use of annual exemptions (£3,000 per year), small gift allowances, and potentially exempt transfers (PETs) – where assets gifted more than seven years before death are exempt from IHT. Larger gifts can also be structured through trusts or family investment companies, ensuring assets are gradually transferred while minimising tax liability.
Pensions and Trusts
Pensions can be a highly tax-efficient estate planning tool, as they do not typically form part of the taxable estate for IHT purposes. By maximising pension contributions and drawing income from other assets first, individuals can preserve pension wealth for inheritance. That said, as of April 2027, the UK government will subject unused pension funds to Inheritance Tax (IHT), marking a significant shift from current regulations where pensions are typically exempt from IHT.
Those with assets of significance that they wish to pass on to their chosen beneficiaries may wish to consider trusts and family investment companies (FICs). Both of these can be viable options to protect business and agricultural assets from IHT liability. Trusts can help remove assets from the estate over time, while FICs allow families to retain control of wealth while benefiting from lower corporate tax rates and structured succession planning. However, both options require careful structuring to comply with tax rules and should be considered with professional advice.
Next steps
Engaging a professional financial adviser is crucial as they can help navigate complex tax changes, IHT relief caps and post-2027 pension tax rules, ensuring tax-efficient estate planning. They provide tailored strategies to protect family and agricultural assets, optimise business structures, and leverage trusts, lifetime gifting, and pension planning to minimise liabilities and secure long-term financial stability.
Professional advice is often instrumental in helping to make informed decisions that will satisfy both business and family priorities. For those UK business owners wishing to safeguard their legacy for future generations, seeking a review of any existing succession plans is a solid first step.
To start receiving expert support on comprehensive financial and succession planning for your business, please contact our team on 0161 764 9944 or email contact@financialopts.co.uk
Meet the Expert
Financial adviser Jenny Loftus possesses more than 17 years' experience in financial planning and strategic wealth management. She acts as a key point of contact for high-net-worth clients as she spearheads our Family Office service. Jenny attained the Level 4 Diploma and Certificate in Mortgage and Advice Practice in 2018. A member of our Board since 2021, she achieved Chartered status in 2023.
Please note: Business Property Relief invest in assets that are high risk and can be difficult to sell. The value of the investment and the income from it can fall as well as rise and investors may not get back what they originally invested, even taking into account the tax benefits.
Tax treatment varies according to individual circumstances and is subject to change.
The Financial Conduct Authority does not regulate Family Investment Companies, Trusts, Inheritance Tax Planning, Estate Planning, Succession Planning, Capital Gains or Tax Planning or Taxation Advice.
Approver Quilter Financial Services Limited & Quilter Mortgage Planning Limited 14.3.25
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