Business succession planning.

Business succession planning is the process of passing ownership and control of a business to the next owners in an orderly way. For a family company or a farm, that usually means children or other relatives, but it can also mean the management team or a third-party buyer.

Family business succession planning has two parts. Control is about who makes the decisions. Ownership is about who holds the value. They do not have to move at the same time, and many parents pass on future growth while keeping control for some years. The plan should work whether the handover happens through lifetime gifts, a sale or on death.

Business property relief reduces the value of qualifying business assets for inheritance tax. Shares in an unlisted trading company and an interest in a trading business can qualify for 100% relief. Land, buildings or machinery used by a company you control, or a partnership you are in, can qualify for 50%. You normally need to have owned the asset for at least two years. Businesses that mainly deal in shares, land or investments do not qualify.

From 6 April 2026, 100% relief is limited. Everyone now has a single £2.5 million allowance, shared between business and agricultural property that would otherwise get 100% relief. Qualifying value above the allowance gets 50% relief, so the excess is in effect taxed at 20% instead of 40%.

• Any allowance a spouse or civil partner leaves unused passes to the one who survives them. If the first of a couple passed away before 6 April 2026, the surviving partner can claim their entire £2.5 million allowance.
• Shares traded on markets that are not "listed" in HMRC's sense, which in practice means AIM shares, qualify for 50% relief only.
• Trusts can also get 100% relief up to £2.5 million, but how much is available depends on the type of trust and when it was set up. For new trusts, the limit is shared across all trusts made by the same settlor.
• A gift made on or after 30 October 2024 can fall under the new rules if the giver does not survive seven years after the gift and passes away on or after 6 April 2026.

From 6 April 2026, inheritance tax on any business or farm property that qualifies for relief can be paid in ten equal annual instalments, usually interest free if each one is paid on time. The family still needs a way to fund it without draining the business.

When you give shares or business assets to your children, three taxes need to be considered.

Capital gains tax

A gift is a disposal at market value, so a gain can arise with no money changing hands. Gift relief can postpone it. See how gift relief works below.

Inheritance tax

A gift to an individual is normally a potentially exempt transfer. If you survive seven years, it falls outside your estate. If you do not survive the seven years, the gift is brought back into account, and business property relief is only available then if the conditions are still met. If you keep benefiting from what you gave away, the gift may not work for inheritance tax at all.

Stamp duty

A gift of shares with nothing paid in return carries no stamp duty. Where a family member pays for shares, stamp duty is 0.5% of the price, rounded up to the nearest £5, on transfers over £1,000. A gift of land or buildings carries no stamp duty land tax unless the recipient pays something or takes on a mortgage, in which case the tax is worked out on that amount.

Giving shares in the family company to children or grandchildren is treated as selling them at market value for capital gains tax, even though no money changes hands. Gift relief, which HMRC calls Hold-over Relief, lets you postpone that gain. You pay no tax on the gift. Instead, the gain is deducted from the recipient's base cost, so it is taxed when they eventually sell.

For example, you give shares worth £500,000 that cost you £100,000. Without relief, the £400,000 gain is taxed now. With a gift relief claim, nothing is payable now and your child's base cost becomes £100,000 instead of £500,000.

Which shares qualify

• Shares in an unlisted trading company, or the holding company of a trading group. AIM is not a recognised stock exchange for this purpose, so AIM shares count as unlisted.
• Listed shares qualify only if the company is your personal company, meaning you can exercise at least 5% of the voting rights.
• If it is your personal company and it holds non-business assets, such as investment property or surplus investments, the gain you can hold over is restricted by reference to those assets.

Who can receive the gift

• An individual, or the trustees of a trust. Relief is not available on a gift into a trust that you, your spouse or civil partner, or your minor children can benefit from.
• The recipient must generally be UK resident. If they emigrate within 6 years of the end of the tax year of the gift, while still holding the shares, the held-over gain becomes chargeable on them.
• A gift to a spouse or civil partner you live with does not need gift relief, because it is treated as giving neither a gain nor a loss.

Making the claim

You and the recipient claim jointly on HMRC's claim form, or you claim alone where the gift is to trustees. Where no tax is due on the gift, HMRC does not normally require the value of unlisted shares to be agreed at the time, so careful estimates can be used.

If a family member pays something

If they pay less than full value, any payment above your original cost is taxed straight away, and only the rest of the gain is held over.

Other points to check

• Inheritance tax: the gift is normally a potentially exempt transfer, with the seven-year rule and business property relief points set out above.
• Children under 18: if you give shares to your own unmarried minor child, dividends on them are normally taxed as your income, unless that income is £100 or less in the tax year.

Some owners need to be paid for the business. A sale to the next generation or the management team can qualify for business asset disposal relief: 18% from 6 April 2026, against the 24% higher rate, on up to £1 million of lifetime gains.

For shares, the company must be a trading company or head of a trading group. For two years before the sale you must have been an officer or employee and held at least 5% of the shares and votes, with a 5% economic interest. These tests can stop being met without anyone noticing, for example after a new share issue.

Management buy-outs are often funded from the company's future profits. Some structures can lead to proceeds being taxed as income rather than capital, so we check the detail before anything is signed.

A share reorganisation can separate today's value from tomorrow's growth. In general terms, the current owners keep shares worth the value built up to date, and new growth shares are issued to the next generation, so future increases build up outside the parents' estates. The rights of each class and the value of the new shares need careful drafting and valuation. The same idea sits behind a family investment company, where parents keep control while growth builds up for their children.

None of this works if the wills and company documents point the other way. A shareholder agreement should cover death, illness and family disputes, including who may buy shares and at what price. Wills should be reviewed now that the £2.5 million allowance can pass to a surviving spouse, because the order in which assets pass can change the overall tax.

Earlier than most people think. Several rules depend on time: two years of ownership for business property relief and business asset disposal relief, and seven years for a lifetime gift to fall outside your estate.

If your plan predates April 2026, review it now. Book a conversation with our Director, a Chartered Tax Advisor, and we will tell you plainly where you stand.