Family businesses with trustee shareholders: navigating the new business relief landscape

For many family businesses, trusts have long played a central role in succession planning. By holding shares through trusts, founders have traditionally been able to balance family governance objectives, asset protection and inheritance tax (IHT) efficiency.

This has been particularly valuable where the fragmentation of ownership is a concern. Many family-owned businesses wish to ensure that shares in the family business remain within the family and pass from one generation to the next. However, as families expand, the number of shareholders can increase considerably, creating governance challenges and the potential for diluted control.

Trusts have traditionally provided an effective solution, enabling successive generations to participate in the value created by the business while maintaining centralised control and supporting the long-term stability of the business.

However, the reforms to Business Relief (BR), which took effect from 6 April 2026, have significantly altered the succession planning landscape. Trustees and direct shareholders will no longer benefit from the same level of IHT protection as under the previous regime. Existing arrangements should therefore be reviewed carefully to assess potential IHT exposure and determine whether restructuring or alternative succession planning measures may be appropriate.

The background

Historically, qualifying business assets could benefit from up to 100% BR, allowing shares in family companies to pass on death or be settled into trust with little or no immediate inheritance tax cost, provided the relevant conditions were met.

From 6 April 2026, a new £2.5m allowance applies to qualifying agricultural and business property eligible for 100% relief. Qualifying value above that threshold generally attracts relief at 50%, resulting in an effective inheritance tax charge of 20% on the excess.

Although much of the public debate surrounding these reforms has focused on the agricultural sector, the implications for family businesses and trust structures are equally significant, particularly where trusts hold substantial shareholdings in valuable trading companies.

Why does this matter for trustees?

Relevant property trusts are subject to their own inheritance tax regime. Unlike individuals, trustees may face entry charges, periodic 10-year anniversary charges and exit charges when value leaves the trust.

Where trust-held business interests exceed the available relief allowance, exposure to these IHT charges may arise for assets which would previously have attracted full relief. The impact will depend, among other things, on when the trust was established and the transitional provisions that apply.

Trusts created before 30 October 2024:

Where qualifying business property was settled into trust before 30 October 2024, the transfer generally benefited from the reliefs available at the time.

For capital appointments, these trusts will continue to qualify for BR until the next 10-year anniversary charge that falls after 6 April 2026. At this point, the £2.5m allowance will apply to the complete quarters after 6 April 2026.

For subsequent charges, the £2.5m allowance will be relevant.

Trusts created between 30 October 2024 and 6 April 2026:

Trusts created during the transitional period generally benefited from the pre-6 April 2026 relief regime on entry, although a death within seven years on or after 6 April 2026 will be subject to the new rules.

The first anniversary charge will be post-6 April 2026, but the £2.5m allowance will not apply in relation to quarters prior to 6 April 2026.

Trusts created on or after 6 April 2026:

For transfers taking place on or after 6 April 2026, 100% BR is available only up to the applicable allowance. Qualifying value above that amount generally attracts relief at 50%.

The detailed operation of the allowance, particularly where multiple trusts have been created by the same settlor, is complex and requires specialist advice. Trustees should ensure that any new trust planning takes account of the allocation of available relief and the potential inheritance tax consequences for future 10-year and exit charges.

What should trustees do now?

Trustees will need to:

• Ensure they obtain robust valuations
• Understand the trust’s potential exposure to 10-year and exit charges
• Monitor the value of business interests held within the trust
• Assess future liquidity requirements to meet any tax liabilities
• Review whether the existing trust structure remains fit for purpose
• Consider whether changes to governance or succession arrangements are required.

How we can help

The April 2026 changes represent one of the most significant shifts in the taxation of family business succession planning for many years. However, despite these significant changes, the benefits that trusts offer will continue to play a part in the succession of family businesses for asset protection, flexibility and the centralisation of control.

Our Private Wealth team is well placed to advise trustees holding shares in family businesses on how to navigate this new tax landscape.