Thinking of gifting your family business shares away as a result of the Autumn budget changes?

Feb 185 min read

Updated: 4 days ago

Everything You Need to Know

Thinking of gifting your family business shares away as a result of the Autumn budget changes by Rachael Ball

IHT considerations

The recent announcement of changes to Business Property Relief (BPR) in the 2024 Autumn’s Budget has caused some dread among those most likely impacted. Changes to the Inheritance Tax relief (IHT) relief available for assets qualifying for Business Property Relief and Agricultural Property Relief (APR) are expected to come into force in April 2026.

We are awaiting the consultation period and the legislation has not yet been finalised in relation to the application to trusts and the proposals cap the amount of relief available. Based on the information at present, the first £1 million of qualifying assets will be exempt from IHT and the rest will attract 50% relief, rather than the current 100% relief. Also, unlisted shares (such as those on the AIM market) will qualify for 50% relief, down from the current 100%.

Understandably, in light of the changes, many people are considering whether now could be the time to pass their shares in their trading companies on to the next generation of their family to reduce the IHT exposure on their death rather than losing up to 20% in IHT payable.

Capital gains tax considerations

Gifting an asset is a chargeable disposal that makes the donor liable for Capital gains tax (CGT). However, since the donor does not receive any funds, a relief, known as the Gift Holdover Relief, is available to them. Gift Holdover Relief, also known as Gift Relief or Holdover Relief, is a CGT tax relief available in the UK that allows individuals to defer (holdover) the gain until the donee (the person receiving the gift) sells the gifted asset.

The assets that qualify to claim Gift Holdover Relief are:

Business Assets

Holdover Relief is available for business assets that:

Are wholly used in the business of the donor

Such business includes:

Sole traders or business partnerships
Personal companies where the donor holds at least 5% of voting rights

If the asset is only partly used for business, the donor can get partial Gift Holdover Relief.

Shares

Shares qualify for gift holdover relief if they are:

Shares or securities not listed on any stock exchange
Shares or securities in the donor’s personal company

Additionally, the shares must be in a company whose main activity is trading.

Agricultural Land

While agricultural land does not qualify as a business asset (because it is not used for trade activities by the donor), it can qualify for Gift Holdover Relief if it is agricultural property for IHT purposes.

Chargeable Transfer for Inheritance Tax

Holdover Relief is available if the disposal is a chargeable transfer for IHT purposes but not a Potentially Exempt Transfer (PET).

The main examples of a lifetime chargeable transfer are when an individual:

Gives an asset to the trustees of a trust (other than a disabled trust)
Becomes entitled to the property of a relevant property trust

Gift holdover relief is a valuable tool in estate planning. By deferring CGT, individuals can transfer assets without immediate tax implications, potentially reducing the overall value of their estate. This reduction can lower the estate’s liability for inheritance tax, making it easier to pass on wealth to future generations.

For family-owned businesses, gift holdover relief can facilitate the smooth transfer of business assets. By deferring CGT, family members can continue to run the business without the immediate financial burden of a large tax bill. This benefit ensures the continuity of the business and supports long-term family ownership.

Other considerations

It’s important for business owners concerned about the impact to take a step back and consider the bigger picture before rushing into gifting shares. If done too quickly, it might prove disadvantageous to them and their family. The budget announcement has left some people have a feeling that they need to do something however, important decisions shouldn’t be made just for tax reasons. If people didn’t think of gifting shares to their children before then it may be the IHT changes driving their thinking and their reasons for not gifting sooner may still be valid.

For example, if it is a family company, is now the right time for children to take control ? They may be facing other issues such as an impending divorce or financial difficulties owners may not be aware of or they may not have the experience needed, potentially leaving the business susceptible to problems. Also, is giving shares away the best thing to do, particularly if business owners need the income/capital value or it results in the loss of control of their company?

For some people, it is definitely worth considering other options such as making gifts of shares to trusts or individuals, but this may not be the right solution for everyone. Before giving shares away, the implications need to be understood.

Younger business owner could gift shares or give something away, but it may be worth considering life insurance to cover the IHT exposure instead. It might even be worth combining keeping those shares alongside insurance cover to protect against the tax liabilities that may arise on death and we recommend that you take advice from a financial advisor alongside your estate planning.

Additionally, there may be other family members not involved in the family business that may need considering when gifting assets and in this case it is even more important to think about other assets. Maybe giving away something that is a bit simpler and doesn’t generate any income, or that would not benefit from any IHT relief.

We are here to help

Whatever your circumstances, estate planning is crucial and should involve all of your professional advisors, particularly with the inheritance tax changes coming into force.

The first step should be to seek professional advice that considers the full picture, particularly with regard to the impact and exposure of the upcoming IHT changes and BPR/APR implications.

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