Gifting Shares: Navigating 2026 Inheritance Tax Changes for Family Business Owners

The Autumn Statement was a game-changer for family business owners, with Chancellor Rachel Reeves announcing that from 6 April 2026 shares in a private trading company — which means most family businesses — would now be included in the inheritance tax (IHT) bill at an effective rate of 20% instead of the current 0%.

This has created a dilemma for many family businesses where there wasn’t previously an intention to sell the business nor the funds available to pay the tax when a shareholder dies. 

Here, Steven Appleton from our estate planning team and Amy Harris from our family law team explain the options available to family business owners, including sensible steps to take to secure your estate from future divorce or separation.

How to reduce your Inheritance Tax bill

Here, Steven explains the options for family business owners and shareholders to reduce the IHT bill ahead of next year’s changes.

I’m working with a number of clients who are worried about how they’ll fund IHT if they die while owning shares in their family business after 6 April 2026. 

Although the first £1m in shares can pass IHT-free, many family businesses own their own premises — and this alone can push the value of the company to well over that allowance. 

The change in IHT treatment of private company shares has led many family business owners to consider gifting shares sooner than they otherwise might have to start the seven-year clock ticking. However, this has much wider implications, which must be carefully navigated.

If you make a gift of shares, you need to consider that:

• You’ll no longer be able to benefit from any dividends declared on the gifted shares.
• The holder of the shares will be able to exercise any voting rights attached to them and this might upset the ‘balance of power’ in a family business.
• Where there’s more than one branch of a family business, any gifts of shares could affect family politics.
• A divorce or bankruptcy could change the recipient of the shares.

The main advantage of gifting is that if you survive after the gift by seven years, the value of the shares isn’t subject to IHT on your death. Due to the way that gifts of shares are valued, the impact of the gift could be significant. 

Family business IHT example

Let’s say that a family business owner — John — owns 100% of the shares in his family business after buying his brother out a decade ago. The business is valued at £10m and as such, John’s shares are valued at £10m. John decides to give away 74% of his shares as he’d like to be able to continue to block a special resolution.

The value of the gifted shares for IHT purposes is the difference between the value of the shares before the gift and the value of the retained shares. Although you might think that a 26% holding would be worth £2.6m, HMRC accepts that because John is now a minority shareholder, his shares are worth around 45% less. So, if his retained shares are worth £1.43m, this makes the value of the gifted shares £8.57m. 

If John survives for seven years after gifting the shares, the IHT payable on his death would be: 

£1.43m - £1m allowance = £430,000 x 20% = £86,000.

If John had done nothing, the IHT payable would have been £1.8m (£10m - £1m allowance = £9m x 20%). 

Once John survives the gift by three years, the IHT liability reduces by 20% and then a further 20% for each subsequent year until the potential liability falls away after seven years. So, even if John doesn’t think that he’ll survive for seven years, it might still be worth taking action now.

If John wants to make the gift but retain some degree of control, he could transfer the shares into a trust of which he’s a trustee. This must be done before 6 April 2026 and John can’t be a beneficiary of that trust.

How to protect your estate from divorce or separation

In addition to financial planning to reduce the tax burden, family business owners should also consider other factors that could impact their gifting plans, such as divorce and separation. Here, Amy outlines how nuptial agreements can help family business owners to protect the business they plan to pass on.

As Steven says, the potential benefits of gifting shares from an IHT perspective are significant. However, we can’t underestimate the possible impact and risks associated with gifting shares to the next generation or other family members. One of the most common risks to shares in a business can come from a divorce. 

Upon divorce, the Family Court can consider all financial resources of the couple when determining what an appropriate financial settlement should be. Shares in a company would be considered a financial resource, regardless of their origin or when the shareholding was received. 

The Court has discretion — where appropriate — to order those shares to be sold or transferred to achieve a fair settlement or meet needs. Divorce can be devastating for a family business and therefore the risks associated with divorce should be considered alongside any discussions around the potential advantages of gifting shares to minimise IHT.

This risk can be mitigated through a pre- or post-nuptial agreement. These act like an insurance policy in the event of a divorce or the dissolution of a civil partnership. In England and Wales, nuptial agreements aren’t 100% legally binding as they are in other countries around the world. It’s not currently possible to oust the jurisdiction of the court when it decides applications for financial remedies on divorce.

However, provided that a nuptial agreement is fair and both parties understand the implications of the agreement and have freely entered into it, nuptial agreements are more likely to be upheld than not. This means that by entering into a nuptial agreement you should expect to be held to it — and the Court is only likely to make an alternative arrangement if the agreement would cause one person to be in a “predicament of real need”. Needs will vary depending on individual circumstances — this is why ensuring that the agreement is fair is so important.

As a result of the court’s favourable approach towards upholding nuptial agreements, they’re increasing in popularity and seen as an important wealth protection planning tool. If a business owner gifted shares, a nuptial agreement may form a vital part of their planning to help keep the shares within the family and minimise the likelihood of shares being shared with a spouse as part of any divorce. While gifting shares could save significant sums of tax, this saving could be overshadowed by the risk of losing 50% of the shares to a divorce.

It's also strongly recommended that anyone considering share fragmentation or company restructuring should also take corporate law advice. This would include a review of the company’s articles of association and it may also be prudent to have a discussion as to whether there should be different classes of shares — perhaps some with limitations which may have certain advantages if a divorce or dispute does take place. Shareholder agreements may also be useful when bringing new family members and individuals into a company. Corporate restructuring and changes can create volatility and having an agreement in place can help to regulate how matters are managed and hopefully reduce any issues that arise. 

Additionally, bringing family members into a business may also make taking employment law advice worthwhile.

Talk to us

Through Brabners Personal, our award-winning solicitors and services can help you to plan effectively for your future. 

We have extensive experience of advising business owners on how to ensure that assets are passed on in the right way while taking account of the new tax regime.

To learn more about our Estate Review process, talk to us by giving us a call on 0333 004 4488, sending us an email at personal@brabners.com or completing our contact form below.