Business owners and shareholders planning to gift shares to their children because of impending changes to inheritance tax (IHT) have been urged to seek comprehensive advice by a tax specialist.
The announcement of changes to Business Relief (BR) in last Autumn’s Budget has caused a great deal of consternation. Changes to the IHT relief available for assets qualifying for BR and Agricultural Relief (AR) are expected to come into force in April 2026.
Although the legislation has not yet been finalised and a consultation is imminent as to the application to trusts, the proposals cap the amount of relief available. This means the first £1 million of qualifying assets will be exempt from IHT and the rest will attract 50% relief, rather than the current 100% relief.
Also, unlisted shares (such as those on the AIM market), will qualify for 50% relief, down from the current 100%.
Many people were wondering whether now could be the time to pass their shares in their trading companies on to the next generation of their family to reduce the IHT exposure on their death.
Corporate tax advisory specialist Tina Harris, Partner at UK top 10 accountancy firm Azets, said the firm had been inundated with queries on the subject, but that now was not the time to make rash decisions. She said:
“Take a step back – don’t rush, don’t panic, take a breath and think of the bigger picture. Our advice is don’t do anything too quickly because you might act in a way that is disadvantageous to you and your family."
“People have a feeling that they need to do something, and the concentration has been very much on shares in a company – and that might not be the right thing to focus on."
“Don’t make important decisions just for tax reasons. If people didn’t think of gifting shares to their children before then it may just be the IHT changes driving their thinking. There must be other reasons why they haven’t given the shares away previously, and these reasons may still be valid."
“If it is a family company, do you really want your children to control it now? They might face a divorce or financial difficulties, or they may not have the experience needed – and where would that leave the business you have built up?”
“Also, is giving shares away the right thing to do, particularly if business owners need the income/capital value or it results in the loss of control of their company? For some people, it is definitely worth considering making gifts of shares to trusts or individuals, but it is not the right solution for everyone. Before you give your shares away, make sure you understand the implications and that you don’t live to regret it.”
Tina added that tax regimes often changed with governments and so there could possibly be a reversal of the current proposals in five years’ time, leaving people who had made a gift now to regret it later.
“People in their seventies or eighties do need to think about matters relatively soon, but any business owners in, say, their forties or fifties, will probably experience many more tax changes in their lifetimes."
“The younger business owner could gift shares or give something away, but what about taking some life insurance to cover that exposure instead? It might be worth combining keeping those shares alongside insurance cover to protect against the tax liabilities that may arise on your death."
“Think also about your other assets. Maybe give away something that is a bit simpler and doesn’t generate any income for you, or that would not benefit from any IHT relief.”
Tina said the first step should be to seek professional advice that considers the full picture, particularly with regard to the impact and exposure of IHT changes and BR/AR implications and then decide how to proceed.
