The Autumn Budget has clarified many tax planning areas, with one change set to challenge many family-run businesses.
From April 2026, companies valued over £1 million will lose the Inheritance Tax (IHT) exemption that has long enabled families to transfer business ownership without incurring a steep tax charge.
Under the new rules, shares in a business passed to heirs will face a 20 per cent IHT charge on any value above £1 million.
For instance, if your business is worth £10 million and the nil-rate bands have already been used, your heirs could be looking at an IHT bill of £1.8 million.
With these changes looming, many business owners are grappling with a difficult decision. Should they sell their business rather than pass it on?
Is selling the smarter option?
For decades, the IHT exemption for private business shares has made succession an appealing choice.
However, the upcoming change presents cashflow challenges for families.
Finding the funds to pay a tax bill could be especially problematic for businesses where much of the value is tied up in non-liquid assets, such as property or equipment.
Selling the business outright avoids this problem, allowing you to realise its value now and manage the proceeds in a way that offers greater financial flexibility.
That said, the window to maximise returns from a sale is narrowing.
Changes to Business Asset Disposal Relief (BADR) will begin from April 2025, gradually reducing the tax benefits available to business owners.
Currently, qualifying gains are taxed at 10 per cent on the first £1 million.
However, this will rise to 14 per cent in April 2025 and then 18 per cent by April 2026.
For example, selling a business for £2 million today would incur a £100,000 tax charge under the current BADR rate.
By April 2026, that same sale could result in £180,000 in tax, a significant increase that impacts how much wealth you can retain for your family.
Timing your exit
If selling is the right path for you, timing and preparation are essential.
Buyers will scrutinise how your business is responding to economic pressures, such as rising labour costs, increased Employers’ National Insurance, and inflation.
Strong financial forecasts, evidence of adaptability, and a clear strategy will be key to securing the best possible valuation for your business.
Deciding whether to sell your business or pass it on is a deeply personal choice influenced by financial, tax, and legacy considerations.
For advice on planning your business sale and navigating these changes, get in touch with our team today.