Current tax legislation tends to incentivise farmers and other business owners to retain ownership of their business until death. When passed on through inheritance, the assets are transferred at their market (probate) value for Capital Gains Tax (CGT) purposes, effectively providing a tax-free uplift in value. Combined with 100% Agricultural Property Relief (APR) and Business Property Relief (BPR), this approach is currently seen as the most tax-efficient strategy.
The current 100% BPR and APR changes from 5th April 2026 and the 100% relief will only be available up to £1 million with the excess charged to IHT after allowing 50% relief.
However, with increasing life expectancy, it’s not uncommon for the next generation to inherit the business in their late 50s or early 60s—often as they themselves approach retirement. This delay in generational transition can hinder innovation and growth, with many arguing that handing over the reins earlier—when successors are in their 30s or 40s—could inject new energy and ambition into the business.
An alternative strategy is to transfer the business during the owner’s lifetime, potentially avoiding IHT altogether, provided the owner survives seven years post-transfer (in line with the Potentially Exempt Transfer (PET) rules). However, this approach can trigger a capital gain at the point of transfer, potentially resulting in a CGT liability.
Fortunately, this gain can be deferred through a “holdover relief”, available by joint election between the donor and recipient. This means no immediate CGT is payable, and if the donor survives the full seven years, neither IHT nor CGT would be due on the transfer.
The trade-off is that the recipient will inherit the donor’s base cost for CGT purposes, as the gain is effectively passed along with the asset. This leaves them in a similar future tax position to that of the original owner, as any eventual sale of the business will trigger a larger taxable gain.
As this is such an important subject please do contact your Director or Client Manager to call us to arrange a meeting to go through the new legislation and how is impacts you.