Pensions - Articles - Business owners must act on IHT reliefs before 6 April

Lee Matthews, Senior Partner in financial planning at wealth management firm Evelyn Partners, says: ‘For many business owners looking at the long-term prospects for their firm and their family’s financial security, 6 April this year is a date that creates a clear deadline for planning. They can still take steps now to mitigate some potentially damaging tax liabilities. A sudden and unexpectedly large IHT bill, particularly where liquid assets are in short supply, could spell the end for even a successful enterprise and the jobs it provides.

‘Transfers of assets that can be made today with no immediate tax charge will be limited after 6 April, and the use of trusts could play a key role, which means that action must be taken now to address some potentially complex IHT planning and legal issues.

‘We have seen data just this week revealing a significant increase in the use of trusts, with the number registered in the 2024/25 tax year amounting to 14.5% of all existing trusts.[1] Some of this will be due to a deadline for the registration of some trusts, relating to anti-money laundering legislation.

‘But we are also seeing an increased interest in trusts among clients since the October 2024 Budget introduced not just these changes to APR/BR but also the inclusion of unspent pension assets from April 2027. As IHT nil-rate bands remain in a long-term freeze (until April 2031) and asset values increase, many more families are being drawn into IHT liabilities – a trend that will be swelled by the IHT reforms which take effect in the next 18 months.

‘But it’s business owners especially who need to focus on the changes to business relief coming in just over two months’ time, and trusts can play a key role in estate planning to mitigate the tax burden.’

IHT reliefs change from 6 April
Lee says: ‘From this date, the current 100% rates of agricultural property and business relief will apply only to the first £2.5million of relevant assets, the threshold having been recently raised from the £1million announced at the October 2024 Budget.

‘Another recent revision means that spouses will be able to inherit unused relief, similarly to the IHT nil-rate bands. Any of the £2.5million allowance unused at death will be transferred to the surviving spouse - and it is not necessary for the deceased spouse to have owned qualifying assets. The rate of relief on assets that don’t qualify for APR/BR will be 50%, creating an effective IHT rate of 20%. Here, we consider a six-step sequence that owners could follow to prepare ahead of April 2026.’

1. Identify which assets fall within scope of business relief
‘The starting point is understanding which parts of the business qualify for BR and which do not. Owners should review the company structure, activities and balance sheet, ideally working with professional advisers. Traps often include large cash holdings, investment activities that creep into the company over time or group structures with mixed trading and investment entities. A clear map of BR qualifying shares is essential for any trust strategy. Owners should also identify assets that are likely to lose BR during a future sale or restructuring so that contingency planning can begin now.’

2. Consider gifting strategy (including the potential use of trusts) before the April 2026 deadline
‘With the rules for BR changing, now is an important time to review gifting strategies, particularly where trusts are involved. Before 6 April 2026, it is possible to transfer any value of BR-qualifying shares into a discretionary trust with no immediate inheritance tax charge, provided the shares qualify for relief.

‘From 6 April 2026, the amount of BR-qualifying assets that can be transferred into trust with 100% relief will be capped at £2.5 million per individual. Any excess above this will attract only 50% relief, potentially giving rise to an immediate inheritance tax charge. This £2.5 million allowance is now transferable between spouses or civil partners, allowing a couple to pass up to £5million of qualifying assets free of IHT on the last spouse’s death.

‘Trusts can be key to succession planning, family wealth preservation and long-term control, but they should be considered as part of a broader strategy. Gifting, whether directly or into trust, must be affordable and should not put your own financial security at risk. Where trusts are being considered, decisions on structure and value should be made well in advance to allow time for legal drafting, valuations and any required shareholder approvals.’

3. Execute share reorganisations and ownership adjustments early
‘Many planning strategies require changes in the ownership structure before shares can be settled into trust or before a sale can proceed. Examples include spousal equalisation, creation of new share classes or preparing a holding company for a future transaction. These changes often take longer than expected due to legal processes, valuation work and the need for shareholder consent.

‘It is critical that reorganisations are completed before any trust transfers are attempted. Poor sequencing can inadvertently break BR conditions or create unexpected tax exposures. Owners who have not started the process should aim to complete structural changes as soon as possible to allow for any follow up actions.’

4. Begin life insurance underwriting to cover BR loss on sale or restructuring
‘When a business is sold, BR qualifying shares convert into cash. The moment this happens, the potential IHT protection they offered is lost. If the owner dies before the proceeds are reinvested or placed into an appropriate structure, their estate may face a large tax exposure.

‘Life insurance held in trust can provide a simple and effective bridge through this risk period, but underwriting can take weeks or months. Medical evidence, GP reports and financial information can create delays that may push completion too close to the deadline. Starting the underwriting process early can help to have cover in place when it is actually needed rather than after the event.’

5. Align corporate restructuring with personal estate planning
‘Corporate actions and personal planning must move together. Business owners often prepare for a sale or refinancing without considering how this interacts with their own wills, trusts and estate plans.

‘For example, a new holding company may change BR status, or a change in voting rights may affect succession intentions. Wills may need to be updated to make best use of the BR allowance or to direct assets to trusts in a way that preserves and maximises potential relief. Advisers should coordinate legal, tax and investment teams so that both the business and personal sides of the plan support each other. A short misalignment at the wrong moment can jeopardise years of planning.’

6. Prepare a post-sale liquidity strategy to maintain tax efficiency
‘Once a sale is complete, owners often hold large amounts of cash for a period while deciding how to reinvest. This creates an immediate IHT exposure and can also lead to missed opportunities if reinvestment is slow or unstructured.

‘A forward plan should outline where liquidity will be held, whether a family investment company (FIC) or personal investment company (PIC) is appropriate and how the proceeds will be managed until a long-term portfolio is established. Planning for this stage now reduces stress after completion and makes the overall transition more tax efficient.’

Sequencing is crucial – and advice is essential
Lee concludes: ‘Each step is valuable on its own, but the order in which owners act is just as important. Share reorganisations should precede trust settlements. Underwriting should begin before any transaction risk emerges. Wills should reflect the final intended structure, not the previous one. Owners who begin now will still have planning options open to them, but to avoid some stressful situations, they should seek advice now to get the necessary corporate and legal steps under the 6 April deadline.’