Three changes in eighteen months have altered the arithmetic for owners of established British companies. None of them forces anyone to act. Together they make the cost of deferring the succession question higher than it was, and they have caused a number of owners to reopen decisions they had provisionally made.
This is a summary written for owners and for the advisers around them. It is general information rather than advice, and the position always depends on individual circumstances.
1. The cap on inheritance tax relief for business property
From 6 April 2026, 100% inheritance tax relief on business property and agricultural property is limited to a combined allowance of £2.5 million per person. Relief above the allowance is given at 50%, which produces an effective inheritance tax charge of 20% on the excess. The allowance is transferable between spouses and civil partners, giving up to £5 million for a couple.
The measure was legislated in the Finance Act 2026. It is worth noting that the allowance was originally announced at £1 million at the Autumn Budget in 2024, and was raised to £2.5 million in December 2025. A good deal of professional commentary published before that date still refers to the lower figure.
What it means in practice. For owners of mid-sized family companies, holding on and doing nothing is no longer a cost-neutral decision. Business property relief had made it possible to defer the succession question indefinitely and pass the company on without an inheritance tax charge. For companies valued above the allowance, that is no longer the case, and the difference has to be planned for rather than assumed away.
2. The reduction in capital gains tax relief on sales to an Employee Ownership Trust
For disposals made on or after 26 November 2025, the capital gains tax relief available on a qualifying sale to an Employee Ownership Trust was reduced from 100% to 50% of the gain. The remaining half is chargeable, producing a maximum effective rate of around 12%.
Two further points matter as much as the rate. Neither Business Asset Disposal Relief nor Investors’ Relief can be claimed against the chargeable half. And a clawback period applies to the seller, during which events that are not always within their control can trigger a charge.
These followed a set of anti-avoidance changes introduced in 2024, which tightened the conditions on trustee residence, trustee composition and the requirement to take reasonable steps to ensure the price does not exceed market value.
What it means in practice. The employee ownership route remains a genuine and often excellent answer, and for many companies it is the right one. But the headline case for it has changed. Owners who chose it primarily on the strength of a full capital gains exemption are, quite reasonably, looking at the position again — and new EOT clearances fell to their lowest quarterly level in four years in the first quarter of 2026.
It is also worth being alert to out-of-date material. A number of advisory firms still have live pages describing a “complete capital gains tax exemption” or a “0% rate” on employee ownership transactions. That was accurate before 26 November 2025. It is not accurate now.
3. Business Asset Disposal Relief
The rate charged on gains qualifying for Business Asset Disposal Relief has risen in two steps: from 10% to 14% in April 2025, and from 14% to 18% in April 2026. The lifetime limit remains £1 million.
Set against a main capital gains tax rate of 24%, the relief is now worth six percentage points. Two years ago the gap was ten.
What it means in practice. The assumption that a straightforward trade sale is a tax-efficient exit is weaker than it was. That does not make a trade sale the wrong answer — for many owners it remains the right one — but the tax argument now carries considerably less of the weight.
What the three add up to
Taken separately, none of these changes is decisive. Taken together they alter the shape of the decision in a way that is worth stating plainly.
Holding on has become more expensive. The most tax-advantaged alternative to a trade sale has become less advantaged. And the trade sale itself has become slightly less efficient than it was. The effect is not to point owners towards any particular route. It is to remove the option of not deciding, which for many owners was the route they were actually taking.
For an owner who had already concluded that they did not want to sell to a consolidator, and who cared about what happened to the company and its people afterwards, none of that original thinking is invalidated. What has changed is the cost of one particular way of acting on it — and that is a reason to look at the alternatives properly rather than a reason to abandon the objective.
Correct as at 27 July 2026. This article is general information and not tax, legal or financial advice. Rates, allowances and legislation change, and the position depends entirely on individual circumstances. You should take advice from your own accountant or solicitor before making or refraining from any decision. Sources: Finance Act 2026; HMRC guidance on Business Asset Disposal Relief and on capital gains tax relief for Employee Ownership Trusts; HMRC clearance statistics.
If this has reopened a decision you had provisionally made.
Private, practical, and without obligation.