Inheritance Tax probably isn’t something you think about when you’re busy running your business.
You’re more likely to be thinking about customers, staff, cash flow, tax bills and whether you can actually get through your inbox before lunchtime.
But if you own a limited company, your business could be one of your biggest assets. And that raises an important question:
What happens to it for Inheritance Tax purposes when you die?
First things first – your company doesn’t disappear
If you own shares in your limited company, those shares belong to you personally. So when you die, the value of those shares can form part of your estate, alongside things such as your home, savings and investments.
That sounds like bad news. But there is potentially some very good news too.
Business Relief can reduce the value for Inheritance Tax
Certain business assets can qualify for Business Relief, which can reduce their value for Inheritance Tax purposes by either 50% or 100%.
For many owners of trading Limited Companies, their shares can potentially qualify for 100% Business Relief, provided the conditions are met.
So imagine you owned shares in a trading company worth £500,000. Without any relief, that £500,000 could potentially be included when calculating the value of your estate.
If the shares qualified for 100% Business Relief, their taxable value for IHT purposes could potentially be reduced significantly.
However, the rules changed from 6 April 2026.
There is now a combined £2.5 million allowance for assets qualifying for 100% Business Relief and Agricultural Property Relief.
Qualifying value above that allowance generally receives 50% relief, effectively giving an Inheritance Tax rate of 20% rather than the usual 40%.
For most small business owners, £2.5 million may sound like plenty – but remember we’re talking about the value of the business, not its annual profit or the money sitting in its bank account.
A successful business built up over many years can be worth considerably more than you realise.
But not every Limited Company qualifies
This is the really important bit.
Simply having “Ltd” after your business name does not automatically mean your shares qualify for Business Relief.
Generally, the company needs to be carrying on a genuine trading business. If the company mainly exists to hold investments, property, shares or other assets. Business Relief generally will not be available.
And this can become particularly important as business owners approach retirement.
Perhaps you’ve sold part of the business and left a large amount of cash sitting in the company.
Maybe the company has gradually accumulated investment properties or an investment portfolio.
Or perhaps you’ve stopped trading altogether but kept the company and its assets.
What was once clearly a trading company can start to look rather different.
The £1 million business sitting under your nose
This is another reason business owners should think about succession planning long before they intend to retire.
You might look at your personal finances and think:
“I’ve got my house, my savings and a pension. I don’t have an enormous estate.”
But then there’s the business you’ve spent 20 or 30 years building.
If someone offered you £1 million for it tomorrow, suddenly your Inheritance Tax planning looks rather different.
And, importantly, Business Relief is incredibly valuable – but only if you actually qualify for it.
So what should you do?
You don’t need to start giving your company away to the children tomorrow 😂
But if you own a valuable business, particularly if you’re beginning to think about retirement or succession, it’s worth understanding:
Roughly what your business is worth;
whether your shares are likely to qualify for Business Relief;
whether investments or surplus assets within the company could affect that relief;
who you actually want to inherit the business; and
whether your Will reflects what you want to happen to your shares.
Because good Inheritance Tax planning isn’t really about finding clever ways to avoid tax. It’s about making sure the business and wealth you’ve spent years building ends up where you want it to go – rather than leaving your family with a tax problem they weren’t expecting.
And that’s a conversation worth having before it becomes urgent.