For over 30 years qualifying business owners, SME’s and farming families have worked on a presumption that the ‘business’ would be protected from IHT on death and therefore pass to the next generation without the worry of breaking up or liquidating the business assets.

With the 2024 budget and changes to take effect from April 2026 this comfort has been substantially removed, as both Business Property Relief & Agricultural Property Relief are to be reduced from 100% to 50% and capped at a combined £1m.

For example, deceased father leaves a qualifying family business worth £5m to his son and daughter. Previously no IHT would be payable now a liability of £800k arises being 40% on the unrelieved value of £2m.

One immediate area of concern for clients is not about finding a magic wand to alleviate this news, although with time and proper consideration the use of potentially exempt lifetime gifts will need to be considered, but the practical and distressing reality of how the tax is to be paid and by whom!

It has been the case, in most families, that the most important consideration is the protection of the business itself to allow proper succession planning and ensure the business or farming enterprise is able to be continued by the next generation without interruption or threat to its very existence.

The basic rule in S.200 IHTA 1984 creates a liability on the Personal Representatives of the Estate to pay all Inheritance Tax arising on death.

Furthermore S.211 IHTA 1984 attaches the ‘burden’ of tax on the residue of the estate, essentially as an expense of administration, unless a contrary intention is expressed for the tax to be borne by the recipient of the asset.

There now needs to be a clear focus on how this liability is to be paid in the absence of sufficient cash in the estate, but equally how to address the issue of ‘burden’ or ‘incidence’ of the tax.

Would it be fair for the ‘residuary beneficiaries’ to carry the entire burden of IHT on, for example, agricultural land or family company shares, if the business assets themselves were a specific legacy to say a specific son or daughter?

Furthermore, separate from the issue of the burden or incidence of IHT, namely on whose shoulders the liability falls , consideration needs to be given as to how the IHT is to be funded e.g. Insurance , share buy backs , instalment plans etc without disposing of the very assets which facilitate the continuance of the business operations?

These are important questions, and a review of existing Wills should be a priority to properly consider the implications and possible answers.

Please contact our Private Client team on 028 90 200050 to arrange a conversation.