Leaving a Business in Your Will: A Complete Guide for 2024

Planning your business succession has become increasingly complex following the 2024 Autumn Budget changes. Understanding how to protect your legacy while navigating new tax rules requires careful consideration and strategic planning. This guide explores the key aspects of leaving your business in your will, including often-overlooked opportunities for tax efficiency and family protection.

Understanding the New Landscape

The HM Revenue & Customs has fundamentally changed how Business Property Relief (BPR) works from April 2026. Under the new system, only the first £1 million of business assets receives 100% relief, with additional value receiving 50% relief. This significant shift from previous arrangements means many business owners need to reconsider their succession planning.

Impact of 2024 Changes

Consider a manufacturing business worth £2 million. Under the old rules, the entire value might have qualified for 100% relief. However, from April 2026, only the first £1 million receives full relief, while the second million faces an effective 20% tax rate, resulting in a £100,000 tax bill. This change has prompted many business owners to explore more sophisticated inheritance tax planning.

Strategic Tax Planning Through Trusts

One of the most overlooked opportunities in business succession planning involves the strategic use of BPR trusts. Many business owners automatically leave their business to their spouse, assuming this provides the best tax outcome. However, this approach often wastes valuable Business Property Relief due to the automatic spousal exemption.

Trust Benefits and Implementation

The Society of Trust and Estate Practitioners advocates for a more nuanced approach using discretionary trusts in your will. These trusts can hold business assets while preserving tax relief and providing family security. For example, a business owner with a £2 million enterprise might leave it directly to their spouse, making the transfer tax-free due to spousal exemption. However, if the surviving spouse later sells the business, the full £2 million becomes taxable in their estate. By instead using a BPR trust, the business maintains its tax-efficient status while still allowing the spouse to benefit as a trust beneficiary.

Early Succession and Director Appointments

Strategic involvement of the next generation through director appointments offers both practical and tax advantages. The Institute of Directors emphasizes the importance of early engagement, particularly when combined with carefully structured Director’s Loan Accounts (DLAs). This approach allows future successors to build their stake in the business while maintaining tax efficiency.

Practical Implementation

Many successful family businesses have implemented this strategy effectively. For instance, a farming enterprise worth £2.5 million appointed two children as directors after they gained external experience. Through structured DLAs and a BPR trust arrangement, they gradually built their stake while protecting the business from future inheritance tax liability.

Comprehensive Protection Planning

Protection planning forms a crucial part of business succession. Relevant Life Cover offers significant tax advantages for business owners and key employees. These policies provide death-in-service benefits while allowing the company to claim tax relief on premiums, with no benefit-in-kind implications for the insured individual.

Executive Protection Strategies

Executive Income Protection complements this approach by providing crucial financial security for directors and key employees. A well-structured policy can protect up to 80% of gross income, including salary and dividends, while offering tax efficiency through business ownership.

Managing Family Dynamics and Business Structure

Different business structures require specific approaches to succession. The Federation of Small Businesses notes that sole traders face particular challenges as their business technically ends upon death. Limited companies offer more flexibility through share transfers, but these must align with existing Articles of Association and shareholder agreements.

The Bottom Line

Leaving your business in your will requires careful consideration of tax efficiency, family dynamics, and practical implementation. The 2024 Budget changes make early planning crucial, particularly regarding the new BPR cap and trust arrangements. By combining strategic director appointments, protection policies, and proper trust planning, you can create a robust succession framework that protects both your business legacy and your family’s financial future.

Frequently Asked Questions

When should I start planning my business succession?

Start planning as early as possible, ideally several years before any intended transition. With significant tax changes coming in April 2026, now is particularly crucial for reviewing existing arrangements and implementing new strategies.

Can I still protect my business from inheritance tax?

Yes, through careful planning using BPR trusts, strategic director appointments, and proper protection policies. While the new £1 million cap affects larger businesses, various planning tools remain available to manage tax exposure effectively.

How do I ensure fair treatment of family members not involved in the business?

Consider using life insurance and trust arrangements to equalize inheritance between business-active and non-active family members. This might involve leaving the business to working family members while providing other assets or insurance proceeds to non-working family members.

What’s the best way to protect my spouse while preserving tax relief?

Rather than leaving business assets directly to your spouse, consider using a BPR trust. This preserves valuable tax relief while still allowing your spouse to benefit from the business assets through the trust structure.

How do protection policies fit into succession planning?

Relevant Life Cover and Executive Income Protection provide immediate security while complementing longer-term succession strategies. These policies offer tax efficiency while protecting both the business and key individuals during the transition period.