Beyond Inheritance Tax: How growth capital can help family-owned businesses

Following the UK Government’s recent Budget, family businesses across the country are facing changes to Business Relief for Inheritance Tax. Set to take effect in April 2026, these changes will significantly impact the potential tax treatment of shares in family-owned businesses.

In light of these developments, many family businesses will be looking for ways to manage future tax liabilities. Growth capital could offer a timely and strategic solution for families to do just that, addressing liquidity needs, without sacrificing business growth.

Read on to learn more about the upcoming changes to Business Relief (previously called Business Property Relief or BPR), and how growth capital can support family-owned businesses through this transition.

Business Relief for Inheritance Tax changes

For many years, families have been able to pass down their businesses from generation to generation, free of Inheritance Tax. As part of the 2024 Autumn Budget, however, the Government announced new rules around Inheritance Tax relief for family businesses.

While the qualifying conditions for Business Relief from Inheritance Tax will remain the same, from 6 April 2026, the amount of relief available to family businesses will be capped.

The first £1 million of qualifying assets (combined agricultural and business property) will continue receiving 100% relief from Inheritance Tax, but beyond this, it will drop to 50%. In practice, this means family businesses — or shares of businesses — valued at more than £1 million will face a 20% Inheritance Tax on the excess (versus the standard Inheritance Tax rate of 40%).

How will these changes affect your company’s growth plans? With these unprecedented shifts in tax policy coming into effect next year, it’s important for business owners to plan ahead, to minimise the impact on family members and other key stakeholders (employees, suppliers, customers).

How growth capital can help

Growth capital is a type of equity funding (or mix of equity and debt) that’s often used by SMEs looking to scale-up. For family businesses considering their options right now, securing growth capital could provide the cash reserves to fund future Inheritance Tax liabilities.

Growth capital investors can also acquire shares from family members, if they want to cash-out (and potentially gift this cash to the next generation, which might be exempt from Inheritance Tax).

Developing a formal succession plan that leverages growth capital for Inheritance Tax obligations and family member cash-outs can also provide valuable structure and security for the future. Meanwhile, some of this capital could be used to reward and retain key employees outside of your family, during these generational transitions.

At its core though, growth capital is used to accelerate business expansion — and this can, in turn, help offset future liabilities. And for family business owners looking to sell their companies (instead of passing them down to the next generation), this growth will also help increase the value of the business, ahead of a future exit event.

Financial and tax advisors can help you assess your company’s Inheritance Tax exposure and determine the most effective strategies for managing Inheritance Tax (IHT) with growth capital. By considering growth capital as part of a comprehensive financial strategy (including appropriate tax planning), family businesses can better navigate the complexities of IHT liability and safeguard their future.

Read our full guide for family-owned businesses here.

The information contained in this article is for general information and use. It does not constitute any form of advice and is not intended to be relied upon in making any investment decision. Independent advice should always be sought as to whether a particular transaction is suitable having regard to your personal and financial circumstances.