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A reasonable description of the choice facing a family manufacturer owner, until recently, would have run something like this. Hold the business, take a modest income, enjoy generous Business Property Relief on death, and let the next generation inherit a going concern. Or, if the family appetite is not there, sell at the right point, take advantage of the relatively kind 10 per cent rate on the first million of gain, and move into retirement with cash in hand. Both options had clear economics. Owners could, broadly, defer the choice without paying much of a penalty for the deferral.
That arithmetic has changed. Both routes are still available, but the value of each has been compressed in ways that have not yet sunk in for many of the owners they affect. The 2026 tax year is the first in which the new picture is fully in force, and a meaningful number of family manufacturer owners are looking at a choice that is materially harder than the one they have been mentally rehearsing.
The "hold to death" route, narrower than it was
For decades, Business Property Relief has done the heavy lifting of family business succession. A trading company qualifying for 100 per cent BPR could pass to the next generation on death with no inheritance tax. That single fact has shaped how a generation of owners thought about their long-term plans. It made holding the business attractive almost regardless of size, because the tax friction at the point of transfer was, in effect, zero.
From 6 April 2026, that is no longer the case. The first £2.5 million of qualifying business assets, per individual, continues to attract 100 per cent relief. Anything above that is relieved at 50 per cent, which produces an effective IHT rate of20 per cent on the excess. For a family manufacturer with an enterprise value of, say, £15 million, owned equally by a married couple, the maths is no longer theoretical. The relievable allowance, fully optimised across spouses, takes the first £5 million off. The remaining £10 million is exposed to an effective 20 per cent charge. That is a £2 million liability sitting in the estate, falling on the individual rather than the company, and typically requiring cash extraction from the business to fund.
The point is not that the relief has disappeared. It has not. The point is that the option of doing nothing, of relying on the relief to clear the position on death, has become considerably more expensive than it was. Owners who have implicitly priced their succession on the old rules need to revisit the assumption.
What about selling?
If holding has become harder, the natural response is to ask whether selling has become easier. It has not.
Business Asset Disposal Relief, the modern incarnation of what used to be called Entrepreneurs' Relief, has been on a steady downward path. The relief now applies at 14 per cent on the first £1 million of qualifying gain, with the rate rising again to 18 per cent from April 2026. For an owner whose business sale would have produced a meaningful gain, the gap between the effective tax rate they expected when they were planning a few years ago and the rate they will actually pay today is significant.
That is the tax picture. The commercial picture is, if anything, less encouraging. Trade buyers in many manufacturing segments are cautious. Demand is uneven, geopolitical risk is elevated, and acquirers are spending more time on diligence and less on auction premiums than they were a few years ago. Private equity remains an active source of capital, but a higher cost of debt has compressed multiples and made sponsors choosier about which businesses they will pursue. Quality assets still sell well. Average ones increasingly find themselves in slow processes with conditional offers and tighter earn-outs.
Add the two pictures together and the option of selling at a moment of the owner's choosing, for a clean number, has narrowed. It has not closed, but it requires more preparation, better positioning, and more willingness to be patient with the right buyer than it did before.
What does the next generation actually want?
The conversation about succession in family manufacturers is too often conducted in the absence of the people whose appetite would settle the question. Many owners do not really know, in any concrete sense, whether their children want to take on the business. The assumption that one of them will, because it is what happened in the previous generation, has become less reliable. The next generation is, on average, better educated, more mobile, and more risk-aware than the one before. The decision to inherit and run a £20 million precision engineering business is not, for most thirty-somethings, an obvious yes.
This matters because it interacts directly with the tax question. The right structure for a family that genuinely wants the next generation to lead is different from the right structure for a family where the next generation will become passive shareholders, which is different again from the right structure for a family where there is no real successor and a sale is, in time, inevitable. Owners who have not had the actual conversation cannot tell which planning path applies. Many proceed on the assumption most favourable to their preferred narrative, which is rarely the right place to land.
Is there a counter-argument?
It is fair to push back. The £2.5 million cap, doubled across spouses, still leaves most genuinely owner-managed family businesses outside the IHT net altogether. The BADR rate increases, even at 18 per cent, leave entrepreneurs paying considerably less than they would on ordinary income. The planning structures available, family investment companies, trusts, lifetime gifting with the discipline to survive the seven-year period, holding company restructures, are mature and well-understood. A family business owner who engages seriously with the planning has options.
That is true. The difficulty is that the planning needs time, and the value of time is itself shifting. Lifetime gifts of business property between 30 October 2024 and 5 April 2026 are subject to anti-forestalling provisions, which means the planning window that owners reasonably thought they had has, in practice, already narrowed. The seven-year clock on lifetime transfers means that anything done now will not fully work, for IHT purposes, until 2033. For owners in their late sixties or seventies, that is not an abstract horizon.
What good preparation looks like
The owners who will navigate this period best are the ones working backwards from a settled view of what they actually want. That sounds obvious. In practice, most owners have not articulated it. They have a preference that drifts somewhere between "I would like the family to keep it" and "I would not say no to the right offer," and the absence of clarity makes every structural decision provisional.
Settling the question is not a tax exercise. It is a family conversation, supplemented by a commercial view of what the business is realistically worth and what it would need to look like to be either retained successfully or sold cleanly. Only once that picture is in place does the tax planning have anywhere to anchor. Inverting the order, starting with the planning and hoping the strategy will fall out of it, is how owners end up with structures that look elegant on paper but do not survive contact with the actual decision they later have to make.
The harder truth, which is uncomfortable but worth saying, is that "we will deal with it later" is no longer a neutral choice. Every year of deferral now imposes a real cost, in tax exposure, in foregone planning windows, and in the narrowing of commercial options. For owners who have always assumed they had time, the assumption deserves a fresh look.
This article has been prepared for information purposes only. Formal professional advice is strongly recommended before making decisions on the topics discussed in this release. No responsibility for any loss to any person acting, or not acting, as a result of this release can be accepted by us, or any person affiliated with us.
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