Many owners think about selling their business and passing on wealth to their family as two separate conversations. They’re not. Treating them separately is a common, costly mistake.
Say your plan involves passing business assets, or the proceeds of a sale, to your children or family down the line. Inheritance tax comes into the picture, alongside the tax you pay on the sale itself.
This article explains how the two connect, and why planning them together protects far more of what you’ve built.
Why These Conversations Belong Together
Most owners handle the sale first. They hire advisers, negotiate a price, and focus on getting the deal done. Family planning waits until the money arrives. By then, many of the best options have gone.
That’s understandable. A sale demands attention, and succession feels like a quieter, later question. However, every decision in a sale affects your family. The structure, the timing, and the form of payment all change what they eventually receive.
So think of it as one plan with two halves. The first half decides how much you keep from the sale. The second half decides how much of that reaches the people you care about.
Two Taxes, Not One
A sale and a family transfer attract different taxes. Owners often focus on the first and forget the second.
Capital Gains Tax applies when you sell. It charges you on the profit you make. Business Asset Disposal Relief can reduce it, but only if you meet its conditions.
Inheritance Tax applies when wealth passes on, either at death or through certain lifetime gifts. The standard rate is 40% on value above the available allowances.
The two taxes work separately, yet they affect each other. Cutting one can raise the other unless you plan carefully.
What Has Changed for Business Owners
Business assets have long enjoyed generous Inheritance Tax treatment. Business Property Relief (BPR) gave 100% relief on qualifying trading company shares. As a result, many owners treated succession as an afterthought.
That position has become more restrictive. From 6 April 2026, a new limit caps the amount that qualifies for 100% relief. Each person has a combined allowance of £2.5 million across business and agricultural assets. Above that, relief drops to 50%, which gives an effective rate of 20% on the excess.
The allowance can also transfer between spouses and civil partners on death. A married couple can therefore potentially shelter up to £5 million. Even so, a successful owner-managed business can easily exceed these limits.
Why a Sale Changes the Picture
Here’s the point many owners miss. BPR protects business assets, not cash. Once you sell, your shares turn into money in the bank. That money no longer qualifies for the relief.
As a result, the proceeds can fall fully into your estate for Inheritance Tax purposes. The relief that shielded your shares simply disappears.
In other words, a sale can swap a relieved asset for an unrelieved one. You might also pay Capital Gains Tax on the way in. So the sale can trigger a tax charge now, and expose the proceeds to a bigger one later.
None of this makes selling a mistake. For many owners, a sale is exactly right. It simply means you need a plan for the proceeds before the deal completes.
An Illustrative Example
Consider an owner whose company is worth £4 million. This example is illustrative only. To keep the numbers simple, it ignores Capital Gains Tax and other allowances.
While the owner holds the shares, the first £2.5 million qualifies for 100% relief. The remaining £1.5 million attracts 50% relief. That leaves £750,000 exposed, and 40% of that comes to £300,000.
Now the owner sells for £4 million in cash. BPR no longer applies, so the full £4 million sits in the estate. A 40% charge on that would come to £1.6 million.
The gap is £1.3 million. The sale made good commercial sense, yet the family’s tax position changed dramatically. Real cases are more complicated, but the pattern holds.
Ways to Plan for the Proceeds
Several tools can help, and each one has trade-offs.
Lifetime gifts. Gifts to individuals generally escape Inheritance Tax if the giver survives seven years. If death comes sooner, the gift may count in the estate, although tapering relief can reduce the tax on gifts made three to seven years earlier. Starting early therefore matters.
Trusts. A trust can hold wealth for the family while you keep a say over how and when they benefit. However, trusts carry their own charges, so they need careful modelling before any money goes in.
Regular gifts from income. Regular gifts from surplus income can fall outside the estate immediately. Good records are essential here.
Spouse planning. Using both partners’ allowances fully can reduce the overall bill.
Life insurance. A policy written in trust can provide cash to cover a bill that would otherwise force a sale of assets.
Gifting Shares Before a Sale
Some owners consider passing shares to family before a sale. This can work, but it needs care.
Gift Hold-Over Relief can defer the Capital Gains Tax on a gift of qualifying business shares. The recipient takes on your original base cost. When they later sell, they pay tax on the full gain.
Meanwhile, Business Asset Disposal Relief depends on the person selling. To claim it, the seller must hold at least 5% and work in the business for two years. Family members who receive shares may not meet those conditions. So a gift could lose a relief you would have kept by selling the shares yourself.
Therefore, you can’t treat gifting as a shortcut. Each route changes who pays what, and when.
Family Matters Beyond Tax
Tax isn’t the only issue. Family dynamics shape succession just as much.
Ask yourself who you want to benefit, and how. Should all your children receive equal shares? Does a child who works in the business deserve more? How will you treat a child who isn’t involved at all?
Fairness doesn’t always mean equal. Yet unspoken expectations cause lasting damage. Honest conversations now are far easier than disputes later.
Timing and maturity matter too. A sudden, large gift can change a young person’s life, and not always for the better. Trusts and staged gifts can help here.
Questions to Ask Before You Decide
Work through these with your advisers before you agree a sale:
- Do I plan to pass wealth to my family, and when?
- What will the proceeds look like after tax, and where will they sit?
- How much of my estate currently qualifies for Business Property Relief?
- Would gifting shares first help or hurt my reliefs?
- Do my spouse and I use our allowances fully?
- Are our wills and powers of attorney up to date?
Honest answers show quickly where the gaps are.
Start the Conversation Early
Bring your accountant and your wider advisers together before you agree a sale. The best time is two to three years out. That gives you room to gift, to restructure, and to test options while the shares still qualify for relief.
Late planning leaves few choices. Early planning leaves many.
The Bottom Line
Selling your business and passing on wealth to your family are two sides of the same coin. Plan them together, not one after the other.
How H&Hendricks Can Help
Bringing your exit planning and your wider family and succession planning together is part of the ongoing advice available through H&Hendricks’ Business Support service.
Ashley Bancroft is a founding Partner of H&Hendricks. A qualified Chartered Accountant and specialises in finance, strategy and entrepreneurship, with particular focus on value creation.
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