Hidden Budget IHT risk that may light a fire-sale of businesses

It hasn’t received as much publicity, but family-run and privately-owned businesses are due to have their Inheritance Tax (IHT) relief restricted in the same way as farmers from 6 April 2026 following the Autumn Budget. This is likely to be very worrying for business owners, but could become even more of a concern when the effect of a fall in value is considered. 

The issue here could impact on those who hold shares in an unlisted company (or in a company that is treated as “not listed” for IHT purposes) that are worth more than £1m at the time of their death. That could include shares in family-run businesses, privately-owned businesses and AIM listed shares. Often the market for these shares is limited and they are not as easy to sell as land or shares quoted on the major stock exchanges.

At the moment, the shares in such companies may usually benefit from IHT relief at 100% provided they have been owned for two years. From April 2026, a £1m allowance will allow shares and other qualifying property to still attract IHT relief at 100%, but the value of any shares above this amount will only benefit from IHT relief at 50%. For many, it will result in an effective IHT rate of 20% being applied to the value of their unlisted shares worth over £1m.  

It is not unusual for the value of shares in privately-owned companies to fall, sometimes dramatically, following the death of a shareholder. Often, these businesses are driven and led by the major shareholder. Take that person out of the business and the business’s performance may decline substantially. Such businesses may also be severely impacted by economic events as was clearly illustrated by the pandemic. 

This won’t be a problem for many right now as IHT relief will often apply in full. That is of course set to change from April 2026. IHT on an asset is usually calculated by reference to its value immediately before the death of its owner. If the value of shares in an unlisted business falls following the death of a shareholder, it could leave the rest of the family on the hook for an IHT liability that they have no means of paying. 

Take for example a fast-growing tech company worth £5m that is led and owned by an unmarried shareholder aged 30 years old. The business may not have substantial assets and the performance and corresponding value of the company is driven by the entrepreneur. If they were to die on or after 6 April 2026 and assuming all IHT reliefs available to them are set off against other assets, an IHT liability of up to £1m may be due in relation to the shares. In order to pay this liability, the estate looks to sell the shares but if the value has collapsed or if buyers seek to take advantage of their predicament, they could end up receiving a much lower amount than the £5m being assessed to IHT. In a worst case scenario, they could end up with a business with no value at all and an IHT liability of £1m to settle.

The current IHT legislation does provide a few reliefs in certain circumstances for the potential fall in value of assets, and these reliefs can potentially prevent nasty tax liabilities being charged on a taxpayer’s heirs when an asset loses value. ‘Fall in value relief’ may apply to lifetime gifts (not legacies left on death) which are subject to IHT because the donor died within seven years of making the gift. Where the asset gifted has fallen in value by the time of death or was sold at a loss by the recipient following a gift, if sooner, the relief broadly reduces the amount chargeable to IHT by the fall in value.

There are also reliefs available where the assets are valued at the date of death but go on to be sold, within a specified time period, at a lower value. There is a specific relief for land, and an additional specific relief for listed shares. These reliefs prevent a beneficiary from being bankrupted by a potential IHT liability far in excess of the eventual value of the assets inherited.

However, these reliefs are limited. The latter reliefs only apply where the asset is sold relatively quickly, and crucially, the relief for shares may only apply to listed shares. Unlisted shares in a family business are therefore specifically excluded from this relief.

This could prove to be devastating for a generation of family and privately-owned business owners, who may inherit a business with a high value, only for the business to struggle subsequently. 

The government do not seem to have considered these circumstances and it is another example of why a technical consultation should have been undertaken before announcing such IHT changes. The documentation released as part of the Autumn Budget did not outline any plans to mitigate this issue. We would urge the government to introduce changes so that estates can claim IHT relief for all types of shares that fall in value following the death of a shareholder.