How to Reduce Inheritance Tax on Your Business Assets 2025/26
- JSC Accounting Team
- Oct 7
- 2 min read
You’ve worked hard to build your business, the last thing you want is for a large slice of it to go to HMRC when it’s passed on. Inheritance Tax (IHT) can feel complicated, but there are several legitimate ways to reduce it or even avoid it completely when it comes to business assets.
Understanding Inheritance Tax
Inheritance Tax is usually charged at 40% on the value of an estate above the current threshold (£325,000 per person, or £650,000 for couples if unused allowance is transferred).
However, business owners may qualify for something called Business Relief, which can reduce the taxable value of business assets by 50% or 100%, depending on what’s owned.
What qualifies for Business Relief
You can usually get 100% relief on:
Shares in a trading company (if you own more than 50%)
A sole trader or partnership business
Land, buildings, or machinery used by the business
And 50% relief on:
Assets you personally own but let your company use
Shares in a company where you control more than half the voting rights
To qualify, you generally need to have owned the assets or shares for at least two years before death or transfer.
Common pitfalls
Business Relief doesn’t apply to investment-type activities like property letting or share trading. HMRC looks at what the business actually does, not what it’s called. So a company that mainly earns income from renting property is unlikely to qualify.
Another pitfall is holding too much cash in the company. If HMRC views that cash as “non-trading,” it may reduce the level of relief.
Practical planning steps
Keep business and personal assets separate. Clear records help prove trading activity.
Review your balance sheet. Avoid building up excessive cash or investment holdings in the company.
Use a will. Make sure your intentions for the business are documented.
Consider lifetime gifts. Transferring shares gradually while still involved in the business can help reduce the future IHT bill.
The simple takeaway
With careful planning, most trading businesses can pass to the next generation without a major tax hit. The key is to plan early. Waiting until later in life can limit your options.
Need help making sense of your taxes? JSC Accounting works with small businesses across the UK to keep things simple and compliant. Get in touch for a friendly chat about how we can help.
