Tax
Succession Planning Must Be Top Of Every Business Owner’s Agenda

With recent changes to UK inheritance tax having made succession planning an urgent priority for all firms, the author of this article takes a look at the salient issues.
Whatever one’s personal political views and opinions on finance and economics, it is difficult to contest the argument that the current Labour government in the UK has presided over a deterioration of business sentiment. The extension of inheritance tax to family-owned firms and farms has caused considerable controversy, and focused minds on what can be done to mitigate the impact.
Tom Adcock, tax partner at accountancy firm Gravita, examines what can be done to reduce the tax burdens and ensure that business transfer goes through as painlessly as possible. The editors are pleased to share these views; the usual disclaimers apply to opinions of guest writers. To comment, email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com
New reports reveal just how much business confidence has
plummeted following the Chancellor’s Autumn Budget last year,
with concern about taxation reported to be at its highest level
(63 per cent) since 2017. No one goes through the effort, risk,
and sacrifice of starting a business without the hope of leaving
a legacy and family-run businesses are now facing serious
challenges.
The changes to inheritance tax (IHT) rules have eliminated
business property relief for businesses valued over £1 million
($1.22 million), although every person still gets the first £1
million free of IHT no matter what the value of the business is.
Whilst the rate is half the usual IHT rate, this previously
unannounced change has shocked family-owned businesses.
Particularly, as for many, this figure is very easy to exceed
once assets such as stock, property, and equipment are accounted
for. This development underscores the urgent need for robust
succession planning, yet many business owners remain unprepared
for what lies ahead.
The absence of this key tax relief is not just a financial blow –
it’s a call to action. Owners must now explore alternative
strategies to ensure the long-term viability of their businesses
and minimise potential tax liabilities for their successors.
Succession planning is no longer a “nice to have”; it’s a
necessity. So, what are the options?
Options for the future
One alternative for those who don’t have the option to pass their
business directly to the next generation is to set up an Employee
Ownership Trust (EOT). This approach allows business owners to
transfer ownership to their employees in a tax-efficient way,
providing a pathway to exit where there is no apparent
third-party purchaser or successor.
Additionally, this structure allows the owner to retain some
involvement and still allows the company to incentivise
management and key employees by way of share incentive schemes.
In the longer term, this is an excellent option for owners who
want to step back while preserving the company’s culture and
values, given that EOTs encourage employee retention and
morale.
Gifting shares can be another viable strategy for those
determined to keep the business within the family, provided it is
approached with foresight and careful planning. Incrementally
transferring parts of the business allows owners to benefit from
the “seven-year rule,” which removes the value of the gift from
their estate after seven years.
However, when shares are sold to family members, the transaction
is considered to occur at market value, regardless of the actual
amount paid. Therefore, gifting shares to family members does not
make the transaction exempt from capital gains tax. However,
provided that certain conditions are met, the immediate capital
gains tax that would otherwise have been paid, can be avoided
with gift holdover relief.
Even for those who cannot wait that long, taper relief after
three years can still reduce the IHT liability significantly.
This strategy requires starting early, ensuring accurate and
defensible valuations, and seeking tailored advice to navigate
complex tax legislation. The earlier the planning begins, the
greater the flexibility owners will have in managing tax
implications and securing the financial stability of the
business.
In the case when owners are focused on wealth preservation,
next-generation engagement, or are relatively young, a trust can
offer significant advantages in terms of family planning and tax
efficiency. Trusts provide a structured way of transferring
assets while maintaining control and stability.
Additionally, trusts act as a safeguard against unexpected
events, such as the premature death of a business owner. For
example, if an owner passes away at forty, a trust ensures that
the business and its assets are managed according to their
wishes, protecting the family's financial security and the
continuity of the business.
In some cases, businesses may even consider geographic mobility
to mitigate the impact of IHT changes. With many businesses
operating in a global economy, relocating to jurisdictions with
more favourable tax regimes has become a much more appealing
option.
While this requires careful consideration of regulatory
requirements, operational feasibility, and cultural fit, it can
provide substantial benefits for businesses agile enough to
adapt. Relocating is not without its challenges, including tax,
but it may be a workable path for certain businesses.
Proactive planning is non-negotiable
Regardless of the approach, one thing is clear: early advice and
planning are critical. Waiting until retirement or an unexpected
event forces a decision can land companies in choppy waters.
Business owners should consult with tax advisors and succession
planning experts to evaluate their options and design a plan that
aligns with their goals.
One of the main advantages of early planning is flexibility.
Starting sooner allows owners to explore multiple strategies,
fine tune their approach over time, and adapt to changes in tax
laws or business circumstances. For example, initiating a share
gifting programme can take years to achieve maximum tax benefits,
such as the full application of the “seven-year rule.” Similarly,
EOTs and other succession options often require long-term
adjustments to corporate structure, governance, and
financing.
By planning, business owners also protect their successors from
potentially crippling financial burdens. Without a solid
succession plan, heirs or new leadership teams may face
unexpected tax liabilities or operational challenges that could
jeopardise the business.
The case for policy reform
Beyond individual action, the severity of the impact that has led
to protests outside Parliament (with more to come), highlights
the need to ideally scrap this change or at the very least
revisit its impact. For example, the government should reconsider
the £1 million tax allowance, which is out of step with the
reality of modern business. Raising the allowance to say £10
million would be perhaps less damaging and support growth,
encourage entrepreneurship, and alleviate the pressure on family
businesses facing substantial tax burdens. This adjustment would
also align with the proposed ‘pro-growth agenda’ and ensure that
businesses have a fair opportunity to reinvest and thrive.
Ultimately, the changes to IHT rules have made succession
planning an urgent priority for all businesses. The last few
years have taught business leaders that uncertainty lies ahead,
whichever route they may choose. As such, the deep emotional ties
involved should be matched with careful forethought and
management. Business owners must not bury their heads in the sand
because the legacy of their business and their family’s
livelihoods it supports may depend on them.
About the author
Tom Adcock advises a large number of international clients on structuring their global affairs, often through offshore jurisdictions. He advises on the tax issues affecting people and businesses coming from all over the world to interact with the UK. He is a regular presenter and author on all matters of property tax. Adcock is the UK representative on the International Tax Committee of DFK International. He started his career as a corporate tax inspector with HMRC in the UK.