Inheritance Tax and Business Exit Planning: What Small Business Owners Need to Know

If you have spent years building a business, the last thing you want is to lose a significant portion of its value to tax when you sell it or pass it on. Inheritance tax and capital gains tax planning are not just for large businesses. They are relevant to any business owner with a company worth more than a few hundred thousand pounds — and the time to plan is before the event, not after. 

Inheritance Tax — the Basics Inheritance tax (IHT) is charged at 40% on the value of your estate above the nil rate band (currently £325,000, or £500,000 if you include a residential property passing to direct descendants). For business owners, Business Property Relief (BPR) can reduce the IHT value of qualifying business assets by 100% — meaning shares in a trading company can pass to heirs free of IHT. But BPR has conditions, and not all business structures qualify automatically. 

What Business Owners Often Get Wrong 

• Assuming their business automatically qualifies for Business Property Relief — it doesn't if it holds significant investment assets
• Not reviewing their will in the context of the business structure — personal and business assets need coordinated planning
• Holding cash in the company unnecessarily — large cash reserves can reduce BPR eligibility
• Leaving planning too late — some IHT strategies require seven years to be fully effective

Business Exit Planning — Selling Your Company 

When you sell a business, capital gains tax (CGT) applies to the gain — the difference between what you receive and what the business cost you. The current CGT rate for business disposals can be reduced significantly through Business Asset Disposal Relief (BADR), formerly Entrepreneurs' Relief. 

BADR conditions: You must have owned at least 5% of the company's shares and voting rights for at least two years before the sale. The company must be a trading company, not an investment vehicle. BADR rate: 10% on qualifying gains up to a lifetime limit of £1 million. Standard CGT rate: 24% for higher rate taxpayers — the difference between BADR and standard CGT on a £1 million gain is £140,000. 

BADR is not automatic. The conditions must be met and the claim must be made. Getting advice before you sign a sale agreement — not after — is what determines whether you qualify.

Company Purchase of Own Shares 

In some exit scenarios, a company buying back shares from a departing director or shareholder is more tax-efficient than a third-party sale. This is a specialist area — the conditions for capital treatment versus income treatment are specific, and the wrong structure creates a significantly higher tax bill. 

How VABK Supports Complex Tax Cases 

For inheritance tax planning, business exit structuring, and BADR applications, VABK works with specialist tax consultants to deliver qualified written advice on every case. We scope the situation, agree the fee before any work begins, and manage the process. You deal with one person throughout. If you are approaching a business sale, reviewing your estate, or holding significant property within a company structure, the conversation is worth having now — before decisions are made that limit your options. 

Book a free consultation to discuss your situation confidentially. 

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