November 11th 2026
Why gifting business shares early could save you significant Inheritance Tax liabilities
By Scott Patrick
November 11th 2026
By Scott Patrick
For many owner-managed businesses, succession planning is often left until later than it should be which is fairly understandable.
When the business remains profitable and the owner continues to play an active role, conversations about retirement, ownership transition and Inheritance Tax (IHT) can feel slightly premature.
However, some of the most effective succession planning opportunities are only available when action is taken early on in the process.
One area we frequently discuss with clients is the potential to transfer shares in their business during their lifetime, rather than waiting for ownership to pass through their estate on death.
Many mature businesses have experienced considerable growth over the years and what may have started as a modest family company is now often one of the largest assets within the owner’s estate.
As a result, you can face several challenges simultaneously:
Without proper planning, substantial value can remain within an estate and become subject to IHT at 40 per cent.
A common misconception is that transferring shares means immediately losing control of the business.
In reality, ownership succession can often be structured over a number of years and shareholdings may be transferred gradually to children, family members or key management personnel while the existing owner continues to retain influence over strategic decisions and day-to-day operations.
This approach can provide several benefits:
For many businesses, a phased succession plan is significantly more effective than a sudden transfer upon retirement or death.
One of the key advantages of making gifts during lifetime is the potential reduction in Inheritance Tax exposure.
Generally, gifts of shares made to individuals are treated as Potentially Exempt Transfers (PETs) and if the donor survives for seven years from the date of the gift, the value transferred will usually fall outside their estate for IHT purposes.
This can be particularly powerful where a business is expected to continue growing in value.
For example, if shares worth £1 million today are gifted to the next generation and are worth £2 million seven years later, it is typically the £1 million value at the date of transfer that is tested for IHT purposes, with the future growth occurring outside the donor’s estate.
The earlier planning takes place, the greater the potential benefit.
Succession is about more than tax
Although tax efficiency is often a major driver, succession planning is ultimately a commercial and family decision.
Some of the questions you should consider include:
Addressing these issues early often leads to better outcomes than waiting until a significant life event forces a decision.
The most successful succession plans are rarely implemented overnight and they evolve over several years and are reviewed regularly as family circumstances, business performance and tax legislation change.
By starting discussions early, you can explore opportunities such as lifetime gifting of shares, gradual transfers of ownership and wider estate planning strategies while retaining maximum flexibility.
For many mature businesses, the best time to begin succession planning is not when retirement is imminent.
It is while the owner remains actively involved, the business is performing well and there is still time to make meaningful decisions that benefit both the business and the next generation.
Every business and family situation is different, and we always treat them as such.
Before transferring shares, we’ll help you understand the interaction between Inheritance Tax, Capital Gains Tax, shareholder agreements and the commercial objectives of the business.
Taking professional advice at an early stage can help ensure that succession plans are structured appropriately, tax-efficiently and in a way that supports the long-term future of the business.
Please get in touch with our team to discuss your future plans.
