Significant changes to the UK’s inheritance tax (IHT) regime are due to come into effect in April 2026. Among those impacted will be recruitment firms and their shareholders – especially those that have historically benefitted from generous Business Property Relief (BPR). Understanding how these could alter succession planning, tax exposure and cash flow will be crucial for business continuity and protecting family wealth.

Overview of the new inheritance tax rules

Currently, BPR allows qualifying business assets like shares in unquoted trading companies to be passed on free of IHT. This means that recruitment firm owners can transfer their businesses to family members without incurring a liability.

Under the new rules, a £1m allowance will apply from 6 April 2026. Individuals will receive full IHT relief on the first £1m of qualifying assets (combined with Agricultural Property Relief, if applicable). A 50% relief will apply to assets in excess of the available allowance. As a result, shares in a private trading company valued at above £1m face an effective 20% IHT charge on the excess value.

Importantly, the new £1m BPR allowance can’t be transferred between spouses or civil partners like the £325k nil-rate band can. Gifts made on or after 30 October 2024, will be subject to the new rules if the donor dies within seven years and on or after 6 April 2026.

Alongside the introduction of the allowance, some assets that currently qualify for 100% BPR (such as shares listed on the alternative investment market) will only qualify for 50% relief. The £1m allowance will not be used against the value of such assets.

What does this mean for recruitment firms?

Recruitment businesses are often structured as private limited companies with significant value tied up in shares which currently qualify for 100% IHT relief. From April 2026 only the first £1m per shareholder will be fully exempt and the remainder will face an effective 20% tax charge.

So for example:

A recruitment firm owner with company shares worth £5m and other assets of £1m wants to pass on those shares to a family member. They can currently do that without paying any IHT at all. Under the new rules, £4m of value would attract a 20% IHT charge – resulting in an additional £800k in tax. Families could be forced to sell shares or extract cash from the business to pay the tax, potentially creating other tax liabilities, disrupting operations or diluting ownership.

How can recruitment firm shareholders prepare for these changes?

Shareholders can mitigate the impact of the new changes by taking the following steps:

Family trading companies

Gifting shares to family members now can spread the IHT burden. Each individual can use their own £1m allowance against future gifts or on death, and minority shareholdings may attract valuation discounts that maximise the potential benefit of BPR.

But, splitting ownership of the business may leave it in the hands of family members who may be unconnected with it or have different views on how it should be run. Issuing non-economic ‘voting shares’ will ensure control is retained when transferring value.

Trust structures

Gifting shares into trusts before 6 April 2026 can ‘bank’ current BPR entitlements. A couple could potentially secure their respective individual £1m allowances plus an additional £1m allowance each if they both make a qualifying gift to trust and do not die within seven years of the gift. However, anti-fragmentation rules will apply to multiple trusts created by the same person after October 2024, so professional advice is essential.

Growth shares

Restructuring share classes so that future growth accrues to a special class of share which can be gifted to the next generation can reduce the current owner’s estate value while preserving control.

Succession planning and buy-outs

Many business owners may have planned to exit in the longer term. Accelerating succession plans, such as management buy-outs or family share sales, can help lock in current reliefs and minimise future tax exposure.

Life insurance

Life insurance policies placed in trust can be used to cover potential IHT liabilities. While premiums may be high, this can be more cost-effective, and commercially more attractive, than selling business assets to pay tax. These policies can be taken out for pre-determined time periods, such as the seven years following a gift or to cover the period until an anticipated exit or liquidity event.

Alternative options

• Nil-Rate Band (NRB): a person’s £325k NRB (or £650k for married couples/civil partners) can be used alongside the BPR allowance.
• Will reviews: wills should be updated to ensure both spouses use their £1m BPR allowances effectively, as these aren’t transferable.
• Instalment options: IHT on BPR-qualifying assets can typically be paid over 10 years interest-free, helping ease cash flow pressures.

The new changes to BPR are a seismic shift in IHT planning for trading businesses. For recruitment firm shareholders, the time to act is now. With thoughtful planning, it’s possible to preserve business continuity, protect family wealth and avoid unexpected tax burdens.

Our experts can help you navigate these changes and develop a robust strategy for long-term success. If you’d like to explore how these changes will affect your firm, or to discuss succession and estate planning options, please get in touch with Caroline Le Jeune or your usual RSM contact.

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