Inheritance Tax planning for business owners
IHT is charged at 40% on estates above £325,000. With Business Property Relief reforms taking effect in April 2026 and pension funds entering the IHT estate from April 2027, the planning window for business owners is narrowing.
IHT is charged at 40% on estates above £325,000
Inheritance Tax (IHT) is levied on the estate of an individual at death. The nil-rate band is currently £325,000 and is frozen until at least 2028. Without planning, beneficiaries can see a significant portion of their inheritance remitted to HMRC.
IHT is levied at 40% on the value of assets above the nil-rate band. The nil-rate band is currently £325,000 and is frozen until at least 2028. A transferable nil-rate band may apply on second death, potentially doubling the threshold to £650,000.
IHT applies to a broad range of assets: residential and commercial property, investments and bank accounts, business interests (subject to reliefs), and personal possessions. Without planning, beneficiaries can see a significant portion of their inheritance remitted to HMRC before distribution. HMRC collected £1.2 billion in IHT in just the first two months of the 2025/26 tax year.
- April 2026: Business Property Relief full exemption capped at £1 million
- April 2027: Pension funds (including SSAS) brought into the IHT estate
- Nil-rate band frozen at £325,000 until at least 2028
Why business owners face greater IHT risk
A significant portion of business owner wealth is tied up in the operating company, commercial property, and retained profits - all of which face compounding risks from the April 2026 and April 2027 reforms.
Business owners face unique IHT challenges. A significant portion of wealth is tied up in the operating company, commercial property used in the business, and retained profits held within the company. Whilst BPR traditionally exempted qualifying trading assets from IHT, cash or investment holdings inside the trading company can jeopardise relief if they cause the company to be classified as an investment company.
The April 2026 BPR reforms mean business owners with assets above £1 million must plan ahead. The April 2027 pension changes require a fundamental rethink of how SSAS and SIPP funds are used in succession planning - unused pension savings that are currently outside the estate will be included from that date.
Risks from reform
- Potential IHT charges on qualifying business assets exceeding £1 million (from April 2026).
- SSAS and SIPP funds treated as part of the estate for IHT purposes (from April 2027).
- Frozen nil-rate band catching more estates as asset values rise.
These shifts have prompted concern in the UK small-business community, with industry groups warning that significant tax liabilities could force the sale of family businesses on succession.
Business Property Relief
Business Property Relief can remove qualifying business assets from your estate. We cover it across our Business Property Relief guides: BPR and the Family Investment Company, BPR and SSAS pensions, the BPR trading company test, and BPR, excepted assets and surplus cash.
The four routes to IHT mitigation
Each approach suits different circumstances. The most effective plans combine more than one.
Family Investment Company (FIC)
A FIC removes surplus profits and investment assets from the trading company and the individual estate. Share structures can transfer value to the next generation over time, and investment returns are subject to Corporation Tax rather than higher individual rates.
Business Property Relief
BPR can exempt qualifying business assets from IHT. From 6 April 2026, full 100% relief applies only to the first £2.5 million of combined qualifying business and agricultural assets. Assets above this threshold receive 50% relief. Directors with significant business holdings should review their position under the new rules - the planning is specific to each situation.
SSAS pension
From 6 April 2027, unused pension funds - including SSAS - will be brought into the IHT estate. Until that date, pension funds currently sit outside the estate, but the window for planning ahead of that change is now. A SSAS can still hold commercial property, make business loans, and form part of a broader succession strategy - but pension planning needs to happen well before April 2027.
Gifts, trusts and allowances
Annual gifting allowances and the seven-year rule allow assets to pass free of IHT. Trusts can remove assets from the estate, though trust rules are complex and reform has limited their use in certain circumstances since October 2024.
How SSAS and FIC work together on IHT
Business Property Relief
BPR remains one of the most important reliefs. To qualify, the business must be a trading company (not primarily investment-oriented) and assets must be held for at least two years prior to death. From April 2026: full 100% relief applies to the first £1 million of qualifying business and agricultural assets combined; amounts above this receive 50% relief, giving an effective 20% IHT rate on the excess.
Gifts and annual allowances
Annual exemptions allow small gifts each year free of IHT. Larger gifts may become exempt if the donor survives seven years (subject to taper relief). Structured gifting to a Family Investment Company is particularly effective for business owners looking to transfer value over time.
Family Investment Companies
A FIC is a private limited company structured to hold family assets. Share classes allow founders to retain control whilst gradually transferring value to family members - for example, children or grandchildren. Investment returns inside the FIC are subject to Corporation Tax rather than potentially higher individual rates. From October 2024, business relief caps apply to trusts, making FICs increasingly attractive as an alternative wealth-transfer structure.
Integrated planning
A sophisticated approach combines a SSAS with a FIC - what TLPI describes as a Lifetime Business Tax Plan. This allows for asset diversification, removal of capital from the estate, Corporation Tax reduction, and pension-led business funding within a single coordinated structure. TLPI is a tax planning specialist, not an FCA-regulated firm.
Common questions on IHT planning
The questions business owners ask us most often.
The nil-rate band is currently £325,000 and is frozen until at least 2028. Estates above this threshold are subject to IHT at 40% on the excess. A transferable nil-rate band may apply where a spouse or civil partner has died, potentially doubling the threshold to £650,000.
Business Property Relief is being reformed. Currently, qualifying business assets can pass free of IHT under 100% BPR. From 6 April 2026, full relief will apply only to the first £1 million of combined qualifying business and agricultural assets. Amounts above this will receive 50% relief - an effective 20% IHT rate on the excess. Business owners with significant business assets should plan ahead.
From 6 April 2027, undrawn defined contribution pension funds will be included in the estate for IHT purposes. Under current rules, unused pension savings generally fall outside the estate, making them a highly effective wealth-transfer vehicle. SSAS, SIPP, and personal pension holders are all affected. Reviewing beneficiary nominations and drawdown strategy ahead of this date is essential.
Business Property Relief (BPR) is a tax relief that reduces or eliminates IHT on qualifying business assets. Qualifying assets include shares in unlisted trading companies, sole trader businesses, and certain AIM-listed trading shares. The business must primarily trade rather than invest, and assets must be held for at least two years. From April 2026, the full 100% exemption is capped at £1 million.
A Family Investment Company (FIC) is a private limited company established to hold family wealth. Different share classes allow founders to retain economic control and voting rights whilst passing value to successors without triggering an immediate IHT charge. FICs are recognised by HMRC and are subject to Corporation Tax on investment returns.
A SSAS currently sits outside the individual estate, so funds fall outside IHT. From April 2027, undrawn pension funds will be brought into the IHT net. However, a SSAS can still contribute to an IHT strategy - by holding commercial property outside the estate within the pension, by making employer loans that reduce company cash (a common BPR risk factor), and by enabling structured contributions that reduce taxable profits.
HMRC treats a company as an investment company if its primary activity is investment rather than trading. This matters for BPR: shares in an investment company do not qualify. The 20% tests provide practical guidance - if more than 20% of income, expenditure, assets, or management time relate to investment activities, HMRC may classify the company as an investment company. Surplus cash held dormant in a trading company is a common trigger.
Explore the detail
Pensions and IHT from April 2027
What the inclusion of pension funds in estates means for SSAS and SIPP holders.
Business Property Relief explained
How BPR works, the April 2026 cap at £1 million, and steps to maximise the relief.
SSAS death benefits
How a SSAS distributes funds on death and the tax position for beneficiaries.
Family Investment Company (FIC)
How a FIC removes surplus profits from the estate and passes wealth to the next generation.
What directors say about TLPI
"Complete confidence from the first conversation. My SSAS is funded and we are investing."
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"Set up a family trust for us to buy a commercial property. Efficient and professional."
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