There is much to consider if your business will be captured by the overhaul, says a JMW expert

I run a coach operating business that is worth approximately £2.5 million. It is a family company that my two adult children are heavily involved in. They will run the business on their own one day.

I have heard that new inheritance tax rules are coming in effect early in 2026 that may prevent a smooth transition of ownership. Can you advise what, if any, action I can take now to help me to secure my children’s position?

The Autumn Budget of October 2024 announced changes to the generous inheritance tax reliefs on agricultural property and business property, which will come into effect from 6 April 2026.

Although the impact on farmers has been well publicised, little has been said about the far-reaching impact on other family businesses. Owners can no longer adopt an estate planning strategy of doing nothing as the forthcoming changes significantly undermine historical and future succession planning.

Under current rules, inheritance tax relief of up to 100% is available on qualifying business assets, allowing those to pass free of inheritance tax when someone dies. If your coach operating business qualifies for 100% business property relief, it can pass to your children free of inheritance tax.

However, from 6 April 2025, the rules are set to change. From that date, only the first £1 million of qualifying business assets can pass free of inheritance tax. Any value exceeding that first £1 million will only qualify for 50% relief.

This effectively means that qualifying business assets over this £1 million will be taxed at 20% instead of the standard 40% inheritance tax rate. The tables below offer a tax bill comparison:

Death before 6 April 2026

Death from 6 April 2026

A death after 6 April 2026 could mean an additional inheritance tax bill of £300,000 on your current business valuation. That could be catastrophic for your business and your children, who may need to extract value from the business (likely subject to income tax) to make the inheritance tax payment – hence the effective rate of tax will actually be higher than 20%.

The key message here is for you to take professional advice, and fast. There is only a small window of opportunity to undertake planning and restructuring now that could save a considerable amount of inheritance tax in the long-term.

Here is a summary of some of the key considerations and actions you should take:

• • Obtain up-to-date valuations of your business assets
  • Consider which business assets qualify for business property relief
  • Calculate the potential inheritance tax exposure under the new rules if you did nothing
  • Consider making lifetime gifts of qualifying business assets into trust ahead of the rule change to take advantage of the 100% unlimited relief rate (and hope to survive seven years to reap the full benefit). Gifts into trust from 6 April 2026 could give rise to an immediate 10% (i.e. 50% of 20%) inheritance tax charge on any value above the £1 million threshold
  • Business owners who are married or in a civil partnership should ensure that each of them own shares worth a minimum of £1 million so that both can benefit from the full £1 million allowance
  • Spread share ownership across different family members. Each member can benefit from their own £1 million allowance
  • Consider new share classes to shift future growth in value to the next generation while allowing the retention of control
  • Review current wills to ensure that they are correctly drafted and that the full reliefs are available. If the £1 million allowance on first death is not fully utilised, it will be lost altogether, causing more inheritance tax to be paid than is necessary
  • Consider how the inheritance tax bill will be funded (i.e. through life insurance, staged share buy-backs or ensuring sufficient cash reserves within the business or estate).

The business property relief changes are complex, so being proactive and seeking expert guidance in advance of 6 April 2026 is key to mitigating the inheritance tax impact and ensuring a smoother transition of your business to the next generation.

I encourage anyone possibly affected by these changes to take the opportunity to speak to us without delay.

Research by the Confederation of Passenger Transport in 2024 showed that 71% of coach operators would be impacted by the change to inheritance tax rules.