Inheritance Tax and succession planning for business owners
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If you own a business and have a pension, two rule changes are about to make your estate considerably more expensive to pass on. From 6 April 2027, unused pension funds will be counted as part of your estate for Inheritance Tax. From April 2026, Business Property Relief is capped, so the shares in your own company may no longer pass entirely tax free.
Inheritance Tax is charged at 40% above your threshold. Most business owners have never had a reason to think about it. From next year, most of them will.
We help you work out what you would actually pay, and what can sensibly be done about it, while there is still time to act.
The bit almost nobody has told business owners yet
For years, pensions were the great exception. You could build a pension, leave it untouched, and pass it to your children outside your estate. It was the most tax-efficient thing most people owned.
That ends on 6 April 2027. From that date, unused pension funds and most pension death benefits are brought into the value of your estate for Inheritance Tax. Above your threshold, that is taxed at 40%.
Take a business owner with a £600,000 pension pot they had always intended to leave to their children. Under today's rules, that pot passes outside the estate. From April 2027, on an estate already above the threshold, it could attract £240,000 of Inheritance Tax that simply did not exist before.
Nothing about that person's business, savings or intentions has changed. Only the rules have.
And your company shares are no longer safely outside it either
Business Property Relief is what lets qualifying business assets pass free of Inheritance Tax. It is the reason many owners have assumed the company would simply go to their family untaxed.
From April 2026, that relief is capped. 100% relief now applies only up to£2.5 million per estate. Above that, only 50% relief applies, meaning the excess is effectively taxed at 20%.
The cap was originally proposed at £1 million and raised to £2.5 million in December 2025, so the number of estates affected is far smaller than first feared. But if you have built something substantial, or you own commercial property alongside the trading business, you are exactly who this is aimed at.
The thresholds are frozen, and that is doing quiet damage
For 2026/27:
- Nil-rate band: £325,000 per person
- Residence nil-rate band: £175,000, if you leave a home to direct descendants
- A married couple can pass up to £1 million between them
- Everything above that: 40%
These thresholds are frozen until April 2031. Meanwhile, property prices, pension values and business valuations keep rising. So each year, without any change in the rules and without you doing anything at all, more of your estate drifts above the line. It is a tax rise that never has to be announced.
What good planning actually looks like
There is no clever trick here, and anyone promising one should worry you. What there is, is a set of decisions that are far easier to make early than late.
Know your number first. Most owners have never had their estate valued properly, including the business, the pension, the property and the life policies. You cannot plan around a figure you do not know. This is where we start, and often the number itself is the shock.
Look at the pension differently. For 20 years the advice was to leave the pension untouched and spend everything else. From April 2027 that logic inverts for many people. Drawing on it, or using it differently, may now be the tax-efficient choice. This needs to be modelled, not guessed.
Check the business genuinely qualifies for Business Property Relief. Many owners assume it does. Companies holding significant cash, investments or let property can fail the test, in whole or in part. Finding that out after death is the expensive way.
Think about succession, not just tax. Who actually takes the business on? Are they ready? Would a phased handover, a share restructure, or bringing family into ownership early be better than everything passing at once? Tax follows the plan. It should not be the plan.
Use the reliefs and allowances that already exist. Gifts, the seven-year rule, trusts where appropriate, spousal transfers, and simply getting the will right. Unspectacular, and effective.
How we help
We are accountants, not salespeople for a product. We do not sell insurance, and we do not have an investment book to fill.
What we do is straightforward. We value your estate properly, including the business and the pension. We show you what would be payable today, and what would be payable under the 2026 and 2027 rules. We model the options, and we tell you plainly which ones are worth doing and which are not worth the complexity.
Where specialist legal work is needed, for wills or trusts, we work alongside your solicitor rather than pretending we are one.
Then we review it. Circumstances change, businesses grow, and rules move. Planning done once and filed away is planning that quietly stops working.
What it costs
Succession and Inheritance Tax planning is project work, priced individually. The fee depends on the size and complexity of the estate, how many entities are involved, and whether there is property or overseas exposure.
An initial review and estate valuation is typically the starting point. We will tell you the fee before we start, and if we do not think planning will save you enough to justify the work, we will say so.
Book a free consultation and we will tell you honestly whether this is worth your time.
Inheritance Tax and succession: frequently asked questions
Will my pension really be subject to Inheritance Tax?+
From 6 April 2027, yes. Unused pension funds and most pension death benefits will be included in the value of your estate for Inheritance Tax. Existing exemptions for a surviving spouse or civil partner, and for charities, are being kept. If your estate is above the threshold, the pension is taxed at 40% like anything else.
Is my business still exempt from Inheritance Tax?+
Not entirely, from April 2026. Business Property Relief gives 100% relief only on the first £2.5 million per estate, with 50% relief above that. Whether your company qualifies at all also depends on what it actually holds. A trading business normally qualifies. One sitting on large cash reserves, investments or let property may not, or may only partly.
What is the Inheritance Tax threshold?+
For 2026/27, £325,000 per person, plus a further £175,000 if you leave a home to direct descendants. A married couple can therefore pass up to £1 million between them. Above that, Inheritance Tax is 40%. These figures are frozen until April 2031.
I am years away from retiring. Is it too early to think about this?+
No, and that is exactly the point. Almost every worthwhile option, gifting, restructuring shares, changing how you draw your pension, phasing a handover, works better with time. The planning that gets done in a hurry is the planning that costs the most and achieves the least.
Do I need a solicitor as well as an accountant?+
Usually yes, for the will and any trusts. We handle the numbers, the valuations, the tax modelling and the business structure. We work alongside your solicitor rather than duplicating them. If you do not have one, we can point you to someone sensible.
We do not have a huge estate. Does any of this apply to us?+
Possibly more than you think. Frozen thresholds, a rising house value and a pension pot add up faster than people expect, and the pension change in 2027 pulls in a lot of people who were previously nowhere near the line. A short review will tell you either way, and if the answer is that you have nothing to worry about, that is a good answer and we will say it.
Can you help if I want to sell rather than pass it on?+
Yes. Selling, passing it on, and bringing family into the business are three different routes with very different tax outcomes, and the right one depends on what you actually want. We look at all three before recommending any.
Find out what your estate would actually cost your family.
Most business owners have never had the number worked out. It takes one conversation, and it is free.