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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

The recent Budget and its impact on the Inheritance Tax (‘IHT’) spouse/civil partner exemption

In summary, we are aware that the new IHT regime effective from 6th April 2025 will have an impact on married couples/civil partners where one has been UK tax resident for 10 or more UK tax years and the other has been a UK tax resident for a lesser period. The consequence is that gifts/transfers of value in aggregate above £325,000 by the UK long term resident spouse/civil partner (‘spouse’)  to their non-long term UK tax resident spouse will be within IHT and to avoid this consequence, the non-long term resident recipient spouse will need to make an IHT election to HMRC agreeing to bring their worldwide estate within IHT until they have lived for 10 consecutive UK tax years outside the UK.

The position before the October 2024 Budget

Transfers between spouses were exempt from IHT to an unlimited extent if both spouses were domiciled or non-domiciled in the UK. If, however, the recipient spouse was not UK domiciled and the transferor spouse was UK domiciled, the IHT exemption was limited to the amount of the IHT nil rate band which since 6th April 2013 has been £325,000.

Since July 2013, an election could be made to cause the non-UK domiciled recipient spouse to be deemed UK domiciled for IHT purposes, so that the full spouse exemption was secured at the price of the global estate of the non-domiciled recipient spouse being within the scope of IHT. Once made the IHT domicile election could not be revoked but ceased to have effect when the electing individual left the UK and was not UK tax resident for 4 consecutive tax years.

Failure to make this election could result for example in any outright gift by the UK domiciled spouse to their recipient non domiciled spouse being (amongst other things) an IHT gift with reservation meaning the IHT 7 year clock did not operate and the gifted asset was potentially in the IHT estate of both the donor UK domiciled spouse and the recipient non domiciled spouse and so potentially chargeable to IHT on the death of both spouses.

The change

Pre budget and to 5th April 2025 liability to IHT remains a domicile-based system. From 6th April 2025, a new residence-based system will be introduced. This will affect the scope of property brought into IHT for individuals and trusts once the individual/settlor has been UK tax resident for 10 or more UK tax years in that their global estate (including offshore trusts they may have created/funded) will be within IHT.

For individuals leaving the UK (whether they left pre or post 6th April 2025) those who have been UK tax resident for between 10 and 13 years will remain exposed to IHT for 3 years from the UK tax year in which they cease to be UK resident. An additional year is then added for each further year above 13 years spent as a UK tax resident up to a maximum of 20 years residence when the ‘tail’ within which the individual’s global estate remains within IHT will be 10 years post their ceasing to be UK tax resident. Thus, assumes they do not again become UK tax resident in that 10 year period. 

The impact of the change on the IHT spouse exemption

From 6th April 2025, the above described IHT domicile election rules will be amended so that the spouse of a long-term resident who is not themselves a long-term resident (meaning they have not yet been a UK tax resident for 10+ UK tax years) can elect to be treated as an IHT long-term resident. The election once made by the spouse who is not a long-term UK resident will last until s/he has secured 10 consecutive UK tax years of non UK tax residence.

*NB failure to make the election will mean inter spousal gifts (especially from the UK long- term resident to the non-long term resident recipient spouse) are prima facie within IHT save for the 1st £325,000 of gifts/transfers.

An area of concern is for example X (a long-term UK tax resident spouse) generates the income/gains or can fund via an inheritance or parental gift the purchase of the family home which X transfers into joint names with their non-long term UK tax resident spouse who has not elected to HMRC to be treated as a long-term IHT UK tax resident. This is a gift by X to their spouse and if X dies before their spouse who remains unelected prima facie the value of the gift above £325,000 will be with IHT on X’s death at 40%. 

IHT domicile elections made before 30th October 2024 (budget day) remain in place, with the spouse making the election treated as deemed UK domiciled to 5th April 2025 and then long-term resident from 6th April 2025 until 4 consecutive tax years of non-residence have elapsed. This election can also be made after 30th October 2024 and before 6th April 2025 with the electing spouse being treated as IHT deemed UK domiciled until 5th April 2025 and then a long-term resident from 6th April 2025 until 10 consecutive tax years of non-residence have elapsed.

If you may be affected by any of the above, please do not hesitate to get in touch. In the first instance please contact Robert Schon:

E: rschon@streathers.co.uk

T: 020 7267 5010

M: 07749 051312