We use cookies that are necessary to make our site work as well as analytics cookie and third-party cookies to monitor our traffic and to personalise content and ads.
Please click “Cookies Settings” for details on how to withdraw your consent and how to block cookies. For more detailed information about the cookies we use and of who we work this see our cookies notice
Necessary cookies:
Necessary cookies help make a website usable by enabling basic functions like page navigation and access to secure areas of the website and cannot be switched off in our systems. You can set your browser to block or alert you about these cookies, but some parts of the site will then not work. The website cannot function properly without these cookies.
Optional cookies:
Statistic cookies help website owners to understand how visitors interact with websites by collecting and reporting information
Marketing cookies are used to track visitors across websites. The intention is to display ads that are relevant and engaging for the individual user and thereby more valuable for publishers and third party advertisers. We work with third parties and make use of third party cookies to make advertising messaging more relevant to you both on and off this website.
UK inheritance tax reforms: why family governance is key to business succession
Isobel Holgate
UK Wealth Planner at Lombard Odier UK
key takeaways.
In light of changes to inheritance tax, business property relief and agricultural property relief, entrepreneurs are rethinking their strategies for passing on their businesses
The potential for an increase in lifetime gifting means that tackling family governance matters has never been more important
If the reforms to BPR and APR bring an increase in lifetime gifting, families should consider governance matters early and create formal documentation.
Article published in STEP Journal in July 2025.
The UK Budget on 30 October 2024 introduced many notable reforms. For family businesses and farms, the most consequential were changes to inheritance tax (IHT), business property relief (BPR) and agricultural property relief (APR).
The Budget included the announcement that 100% BPR and APR will be capped to the first GBP 1 million of combined agricultural and business assets for every person or pre-existing trust from 6 April 2026. Any agricultural or business assets exceeding that threshold will qualify for relief at a rate of 50%, delivering an effective IHT rate of 20% on death. Previously, these reliefs were unlimited, subject to meeting certain conditions, and were among the most valuable and longstanding reliefs from IHT. With the new GBP 1 million allowance no longer transferable between spouses, careful planning is essential to maximise the reduced relief.
The changes mean that many entrepreneurs who might previously have expected to pass on their business to their heirs free from IHT are now having to rethink their strategy
It’s a family affair
The changes mean that many entrepreneurs who might previously have expected to pass on their business to their heirs free from IHT are now having to rethink their strategy. This is to avoid leaving their executors with a substantial tax bill and insufficient liquidity to pay it.
In some cases, the tax changes might spell the end for family businesses in the UK, putting them at risk of higher taxes, rising costs, fire sales and potential internal disputes. It is becoming increasingly clear that some entrepreneurs are responding to these changes by seeking a sale in the short to medium term.
Sign up for our newsletter
An option that some entrepreneurs may be considering is passing over the reins of the business during their lifetime. Lifetime gifts of assets, including shares in businesses, are still exempt from IHT if the donor survives for seven years after the transfer. That said, there are other taxes to consider with gifting of assets, including capital gains tax, where holdover relief can apply to gifts of business assets. Care must also be taken to ensure the donor does not continue to benefit from the gifted property, since this could trigger the Gift with Reservation rules, rendering the gift ineffective for IHT purposes.
The potential for an increase in lifetime gifting means that tackling family governance matters has never been more important. Relinquishing control of the family business or assets that were built up from scratch can be an unsettling prospect for entrepreneurs. Their sense of concern may be exacerbated if they have not had the right conversations with the next generation, or do not have a framework for decision-making and involvement within the family.
A key challenge here may lie in the disconnect between Next Gens, who believe they are prepared for succession, and the opposing view of those who are passing the business on. US research highlights this divide, with 85% of Next-Gen respondents reporting that they are ready for succession, compared with just 39% of family-office respondents who believe that Next Gens are sufficiently prepared.
Good family governance ensures transparency, open communication, stability and continuity for the family wealth and the family itself. A formalised governance structure can play a critical role in facilitating smooth succession. It is human nature to avoid addressing the succession issue until a crisis forces it – this is often due to a reluctance to confront the emotional aspect of the conversation. For some families, however, the threat of a looming IHT bill on death may serve as the trigger to engage in these important discussions.
The starting point in a family governance process is often to consider a fundamental question: what is the purpose of the business or the wealth it has created? This naturally opens the door to deeper conversations about values, vision and mission. Answering these questions collaboratively, with all the relevant parties in the room, fosters a shared sense of purpose. When the next generation is actively involved in this way, they are far more likely to embody the values of the business and bring the vision to life than if they simply inherit a mission statement or list of values that they have had little or no involvement in creating.
We are family, or are we?
It is equally important to consider who actually comprises the family. If an asset owner is considering transferring control to the next generation, clarity around this definition becomes critical, particularly if the intention is to ensure the assets remain within the family, whether defined by family bloodline or a broader interpretation. Having open, honest conversations about wills, prenuptial agreements and asset protection with the relevant parties, while the wealth creator is still alive, helps make for a smoother transition with less risk of future disputes.
Linked to this consideration is the need to formalise the criteria of family roles within the business, defining both the protocol for appointment and the process for removal, when necessary. If an entrepreneur is passing on the business to their heir, it is essential to ensure they are the right person for the job and have the appropriate support structures around them to enable them to succeed.
A key consideration for business owners considering gifting assets to the next generation is cash flow and distribution. If they have historically relied on dividend payments to fund their lifestyle, then it is paramount to clearly document the distribution entitlement and determine whether it will be a family-wide approach or on an as-needed basis. Formalising these decisions is a vital part of family governance, providing clarity and predictability, and helping to secure consensus among the whole family.
If the reforms to BPR and APR bring an increase in lifetime gifting, families should consider governance matters early and create formal documentation
The time is now
Most importantly, succession is not a one-off event, and it’s no longer just about the transfer of assets. It’s about building an active, engaged team across generations. If the reforms to BPR and APR bring an increase in lifetime gifting, families should consider governance matters early and create formal documentation. This does not need to be a 50-page charter document, but an appropriate and accessible framework for the family, now and in the future.
important information
This is a marketing communication issued by Bank Lombard Odier & Co Ltd (hereinafter “Lombard Odier”).
It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a marketing communication.
share.