Roughly a third of UK family businesses survive into the second generation, and far fewer reach the third. The cause is rarely a bad business — it is the absence of a plan. Succession planning is the work of deciding, early and deliberately, how ownership and control of a family company pass to the next generation without a tax shock or a family rift. The 2026 changes to inheritance tax reliefs make starting now more important than ever.
Two different questions: ownership and management
Good succession separates two things that families often blur:
- Ownership succession — who holds the shares, and how value passes down.
- Management succession — who actually runs the business day to day.
They do not have to move together. A founder can hand operational control to a child or a non-family manager while retaining or gradually gifting shares. Confusing the two is how capable outsiders get blocked and unready heirs get overpromoted.
Business Property Relief after April 2026
For decades, qualifying trading businesses passed largely free of inheritance tax thanks to Business Property Relief (BPR) at 100%. From 6 April 2026 this changes materially: 100% relief is capped at the first £1 million of combined business and agricultural property, with the value above that qualifying for 50% relief — an effective 20% inheritance tax charge on the excess. Shares quoted on AIM and similar markets drop to 50% relief.
For a family company worth several million pounds, this is a real liability that did not exist before. It makes lifetime planning — rather than relying on death-bed reliefs — far more important. The interaction with the frozen £325,000 nil-rate band and the residence nil-rate band needs to be modelled for each family's circumstances.
Routes to pass on shares
The main mechanisms, each with trade-offs:
- Outright lifetime gifts. A gift of shares is a potentially exempt transfer (PET) — fully outside your estate if you survive seven years, with taper relief in between. Gifts can also trigger Capital Gains Tax, though holdover relief is often available for trading-company shares so the gain passes to the recipient rather than crystallising on the gift.
- Trusts. A discretionary trust lets you move value out of your estate while keeping control over who benefits and when — useful where heirs are young or not yet ready. Trusts have their own ten-year and exit charges, so they need to be sized correctly.
- Family investment companies (FICs). Increasingly used as an alternative to trusts for passing down value while parents retain control through a separate class of voting shares.
- Different share classes. Growth shares or freezer/alphabet structures can pass future growth to the next generation while parents keep current value and income.
Governance: the part families skip
Tax structuring fails without governance. A family business benefits from a clear shareholders' agreement, a defined dividend policy, agreed rules on which family members can work in the business and on what terms, and a forum (even an informal family council) for the conversations that otherwise get avoided until they become disputes.
Start early — the 5-to-7-year runway
The seven-year PET clock, the two-year ownership tests for various reliefs, and the time it takes to train a successor all point the same way: succession is a multi-year project, not a transaction. Owners who begin in their fifties have options that owners who begin in their seventies simply do not.
How PushDigits can help
We help family businesses model the inheritance tax position under the new BPR rules, design a gifting or trust strategy, and put the governance and share structure in place to hand over cleanly. See our Business Advisory service, learn about our tax planning approach, or speak to an adviser about your succession.