If you watched Glastonbury this year, you could be forgiven for thinking the headlines were all about the music. But there was one headline that only caught the eye of tax advisors. Michael Eavis, the founder of the iconic festival, has reportedly put his family’s shareholding into trust – a strategic move to safeguard against the government’s forthcoming changes to Inheritance Tax (IHT).
It’s a textbook example of smart succession planning.
Eavis, like many business owners, understands the potential financial burden these new rules could place on future generations. From April next year, the ability to pass on business assets tax-efficiently will change significantly. Farms and trading businesses will face a flat 20% IHT charge on anything above a £1m per person allowance.
And while 20% might not sound catastrophic, the reality for many is far more complex – and costly.
The hidden cost of doing nothing
Let’s say you own a business valued at £10m.
You pass away post-April 2026, and your estate faces the following:
- £1m allowance is applied.
- 20% IHT on the remaining £9m = £1.8m tax bill.
But here’s the catch.
That £1.8m liability sits personally with your estate. The cash is often tied up in the business, so accessing it can become a complicated and expensive process.
- To extract £1.8m from the company might require gross income of £3m (subject to income tax at c.40%).
- The company may need to generate £4m in profits just to deliver that £3m.
- Corporation tax at 25% erodes those profits further.
What starts as a 20% liability can end up swallowing more than 50% of the business’s profits when you follow the money through.
And if the cash isn’t readily available? Interest is already accruing at over 8% per annum on the unpaid IHT bill.
What’s the solution?
One increasingly popular strategy is to transfer shares into a Family Trust before these new rules come into force in April 2026.
Provided:
- The shareholders survive seven years post-transfer; and
- The trust is properly established before the rule changes…
…it’s possible to reduce the IHT liability on those shares to zero.
Why a Trust works:
- Creates a lasting legacy that can benefit multiple generations.
- Shields the family from significant IHT charges on the business.
- Offers protection from future divorce claims within the family – unlike gifting shares outright.
- Enables control to be retained through trustee roles.
- Allows flexibility on the timing of transferring assets to the next generation.
Plan B – Realising value now
Another option is to crystallise some value today. A partial sale of shares can trigger Capital Gains Tax (CGT), but with Entrepreneurs’ Relief:
- First £1m per person at 14%.
- Further gains at 24%.
- You might choose a hybrid strategy – selling some shares and gifting the remainder into trust to balance tax efficiency with accessing cash.
What next?
With the rules changing in just 8 months, business owners need to take stock now. Start with three simple steps:
1. Review your wealth.
Get a realistic view of your assets – property, investments, pensions, and crucially, the value of your shares. (Business valuations can get tricky where multiple shareholders are involved.)
2. Quantify your IHT exposure.
Work through your estate’s exposure:
- 20% on business shares post-April 2026.
- 40% on pension funds.
- 40% on most other assets.
- Don’t forget the 7-year gifting rule and existing exemptions.
3. Consider liquidity.
Where would the cash come from to pay an IHT bill? Are there sufficient personal assets, or would you need to extract value from the business? Consider too any plans to divide assets between family members – it can quickly become a tangled web.
If this raises questions or concerns, we’re here to help and are happy to offer an initial review to help you understand whether you have an IHT issue and what your options might be.
