Important Changes to Inheritance Tax (‘IHT’) on Shares in an Unquoted Trading Company – Act Now

The October 2024 Budget introduced significant changes to how IHT applies to shares in unquoted trading companies. These changes come into effect from 6 April 2026 and will have a big impact on business owners and their families.

What’s Changing?

From 6 April 2026:

  • If you pass away owning shares in an unquoted trading company, and those shares go to someone other than your long-term UK tax resident spouse or civil partner, the value above £1 million will be taxed at 20% IHT.
  • This replaces the current, more generous IHT reliefs available for business assets.

Lifetime Gifts – A Planning Opportunity

You can still gift up to £1 million worth of shares every 7 years with 0% IHT, as long as you’ve owned the shares for at least 2 years.

  • Your spouse can also use this allowance, provided they meet the same conditions.
  • This could save a couple up to £800,000 in IHT every 7 years.

Plan Before April 2026

If you act before April 2026, you can still take advantage of the current, more favourable rules:

  • For example, transferring shares into a trust before this date could significantly reduce future IHT, provided you survive 7 years after the transfer.

What Happens After April 2026?

  • In the event that the estate of the deceased is not passing to their spouse (see above), the value of trading company shares above £1 million will be taxed at 20%, payable over 10 years with no interest. However, if the company is sold during the 10-years after the donor’s death, the entire outstanding IHT becomes due.

If a married couple owns trading company shares and one dies, the survivor can still pass on £1 million tax-free of qualifying shares every 7 years. Example:


If, when the second person in the couple dies, the trading company is valued at £11.65 million, the IHT bill at best would be:

  • First £1.65m taxed at 0% = £0 IHT
  • Remaining £10m taxed at 20% = £2 million IHT
  • So, £200,000 per year would need to be paid to HMRC every year for 10 years. This would typically come from dividends, which are themselves subject to income tax so the £200,000 pa  will need to be funded from post-tax monies.

If HMRC decides the company is actually an investment company, not a trading company:

  • The IHT rises to 40%, and
  • The 10-year, interest-free payment option is lost.

What Should You Do Now?

To reduce the IHT burden, especially on the death of the second spouse, early planning is crucial:

  • Review the company’s activities and assets to make sure it qualifies as a trading business and is eligible for relief.
  • Plan regular lifetime transfers (every 7 years if possible) to make the most of the 0% IHT allowance on up to £1 million of shares per person.

Need Help?
If you’d like to discuss how these changes might affect you or your family, please get in touch with Robert Schon.📞 07749 051312
📧 rschon@streathers.co.uk