Planning for business owners in a post-Budget world

Impact of the draft Finance Bill 2025-26 on business owners

A lot has been made of the changes first announced at the Autumn Budget 2024 in relation to Agricultural Property Relief (APR) and their potential impact on the farming community. But, what about those involved in running a business?

When Rachel Reeves broadcast the introduction of a £1 million allowance for APR and Business Property Relief (BPR) from 6 April 2026, the debate began about how many farms would be affected. However, many business owners will also need to review their future planning following confirmation of the coming reforms with the publication of the draft Finance Bill 2025 – 26 on Monday 21 July. Coupled with the hike in National Insurance and National Minimum Wage, there is a lot for entrepreneurs to consider in a challenging market. 

Given all this, it's not surprising that a recent Brown Shipley survey reported that 38% of UK entrepreneurs plan to look at selling their business earlier than they originally intended following the Autumn Budget. There are significant advantages in bringing such plans forward for inheritance tax planning.

Background to BPR

BPR was introduced in 1976 with the aim of ensuring a family-owned trading business could continue to operate after the death of an owner without having to be sold or broken up to pay inheritance tax. The rate of relief has gradually increased so that currently it's either 50% or 100% for qualifying business property. Broadly, if a person has owned a business or business asset for at least two years before they die, unquoted shares in a company get 100% relief, whereas land, buildings or machinery used by a company get 50% relief. As the current rate of inheritance tax is 40%, this is a very significant inheritance tax saving and planning tool.

The Autumn Budget turned BPR on its head. Business property that currently qualifies for 100% relief from inheritance tax will continue to do so from April 2026, but only up to the first £1 million in value (and, if an individual has a combination of agricultural and business property there will still only be one £1 million allowance, and the value will be aggregated). Any assets that exceed £1 million will pay inheritance tax at half the rate, i.e. 20%. For entrepreneurs who had previously been able to rely on passing their businesses on without serious inheritance tax consequences, this has really put a cat amongst the pigeons.

Planning tips

If you find yourself facing this scenario, what can you do? Well, as alluded to earlier, bring your business succession plans forward if you can. Many of our clients who are selling their businesses or want to start bringing other people on board during their lifetime, will do so using a trust. Transferring business assets into trust before April 2026 has significant advantages:

• There is the opportunity to 'bank' 100% BPR: from April 2026, there will be a 20% entry charge on any business property put into a trust which is over the £1 million allowance. That charge can be avoided if the transfer is made pre-April 2026.
• Using a trust allows you, the business owner, to retain control over your business.
• The value of the business property you transfer to the trust is removed from your estate for inheritance tax. (However, if you die post-April 2026 but within seven years of the transfer, inheritance tax will become due at 20% on any business property over the £1 million allowance.)
• Subject to surviving seven years from the transfer, you protect the future of your business from sale to pay inheritance tax.
• The benefit of using a trust as a vehicle to hold your business is that, once sold, the proceeds of sale of the business remain in trust. You can pass your wealth down the generations and protect it from threats like divorce.

Of course, it will not be the right time for all entrepreneurs to do this kind of succession planning. Using a trust to transfer business assets to after April 2026 will still be an important planning tool for many business owners. The ability to retain control over the business and protect wealth for future generations will be a factor for many in using a trust to hold business property. There will still be the opportunity to bank £1 million of BPR and to remove that value from the business owner's estate. In addition, it will provide a chance for the company's board to put payment of inheritance tax on its agenda and to prioritise planning for it to allow the business to continue.