Inheritance tax on company shares | The new rules

Inheritance tax on company shares explained

The autumn budget has not been good for businesses, and we find ourselves paying the bulk of the tab for the funds the government wants to raise as well as paying inheritance tax on company shares.

An unexpected tax was the change to inheritance tax on our business assets.

Before the budget, we could leave our shares in our unlisted limited companies to our beneficiaries free of inheritance tax under business property rules (BR).

These rules will change in 2026. Each person will have a £1 million tax-free allowance for our limited company shares. Any value will, in addition, be exposed to inheritance tax, but at a 50% discounted rate of 20%.

Therefore, a person with shares valued at £2 million could leave £1 million tax-free and then pay 20% inheritance tax on the remaining £1 million, creating a £200,000 tax liability. 

The allowance is per person, so a husband-and-wife team who jointly own shares could use 2 x £1 million allowances, subject to shareholding.

So how can we protect our companies from inheritance tax?

An easy go-to for many company directors will be inheritance tax insurance, where you can cover the full amount of inheritance tax under a whole-of-life policy or in some cases relevant life policy.

You or your business pay a monthly premium, and when you die, the insurer pays out a tax-free benefit to your family, who in turn use this to settle the inheritance tax due.

If you intend to sell your company before age 75 then a relevant life policy would be fine, and premiums can be paid for by your business and qualify for corporation tax relief.

For policies past age 75 a whole-of-life posily would be better.

Should I wait until 2026 to arrange inheritance tax insurance?

As with all life insurance, the younger you are when you take a policy, the cheaper the premiums. Also, as policies become more popular in the next few years, it’s highly likely that premiums will rise.

Find out how much the cover you need might be in just a few minutes. We can show you a quote from every insurer in the market, and don’t share data or information with anyone else.