Why Family-Owned Travel Businesses Need to Start Planning for IHT Changes

Changes to Inheritance Tax (IHT) business reliefs set to come into force from April 2026 have attracted a lot of controversy for the detrimental impact they will have on family-owned farms.

But they will also affect all types of family- owned businesses, including travel and ABTA members.

What is Business Property Relief (BPR)?

Like the well-publicised Agricultural Property Relief (APR), BPR has long provided an exemption from IHT when business assets are passed on to a family member upon the death of the owner. This has helped to ensure the continuity of family businesses across generations by avoiding punitive tax bills upon inheritance.

At present, BPR provides 100% relief (so no IHT due at all) on business assets held in a sole partnership, partnership or LLP, or in the form of shares in an unquoted trading company. It provides 50% relief when inherited assets come in the form of personally owned land, buildings, machinery or plant, or when a controlling stake in a quoted company is passed down to a family member.

How is BPR Changing?

From 6 April 2026, however, the 100% rate of relief will be capped at a lifetime allowance of £1m. That allowance will apply not only to assets held by the deceased at the time of death, but also to any qualifying assets transferred into trust, and to any gifted to the beneficiary within seven years prior to their death. Once the £1m personal limit has been passed, all subsequent assets that quality under BPR will be subject to 50% IHT relief, or a 20% rate of tax.

How Will the Changes Impact ABTA members?

The impact of this could be significant. Imagine, say, a family-owned tour operator is valued at £5m. Under the current BPR regime, a sole proprietor would have no concerns leaving their entire holding to their son or daughter as there would be no IHT due at all. But from April next year, there would be 100% relief on the first £1m only, and 50% relief on the remaining £4m. That would amount to an IHT bill of £800,000.

How Can Family Businesses Minimise the Impact of BPR Changes?

When these rules were first announced, it was confirmed that the £1 million lifetime allowance would not be transferable between spouses and civil partners. This required a very particular approach to will planning, to ensure each spouse or civil partner would benefit from the full £1 million allowance. However, it has now been announced in the latest budget that the lifetime allowance will in fact be transferable between spouses and civil partners, allowing for the unused portion of the allowance to be used in the estate of the surviving spouse or civil partner.

Other options include passing on holdings in the business to successors as gifts. As long as the donor lives for seven years after the gift is made, those gifts will be exempt from IHT. Should the beneficiaries subsequently sell or otherwise dispose of their holdings, however, they will have to pay Capital Gains Tax (CGT).

Another route to consider is passing control of the business to successors in a family buy-out. This involves family members forming a new company and taking control via a formal business purchase. In this case, the owners would be liable to pay CGT on the money they receive for their share in the business. But, if they qualify for Business Asset Disposal Relief (BADR), this would be at the reduced rate of 14%. This option may suit business owners who are ready to retire and want to take capital out of their business to fund their retirement. The downside is, should they have more than £325,000 (£650,000 for couples) in assets when they pass away post-sale, that would all be subject to 100% IHT, with no relief available.

Finally, there is a narrow window of opportunity to transfer business assets you intend to pass on into a trust before April 6th 2026. This is before the new rules which take assets in trust into consideration as part of the £1m lifetime allowance come into effect. This is worth considering if the value of your business assets is considerably more than £1m.

Final Thoughts: A Helping Hand With Your Succession Plans

In practice, with the changes in BPR coming into effect next year, completely avoiding IHT and/or CGT liability on family business successions involving sizeable assets will no longer be possible. The question then becomes how far you can minimise liabilities through effective estate planning.

What that looks like will be different for every business owner, depending on size, ownership structure, and what your disposal and succession plans are. Are you ready to cede control, and take capital out of the business for retirement? Or do you want to get your holdings below the £1m BPR threshold while retaining operational control?

These are questions that Xeinadin’s business planning and tax specialists can help you answer. We pride ourselves on helping clients on every step of their journey in business and in personal finance, from beginning to end. Making your family business succession plans tax-efficient will require some careful planning and likely a mix of measures to meet your goals. You tell us about your situation and what you want to achieve, we crunch the numbers and explain your options. Time is ticking before BPR relief changes, so why not get in touch with us today to get the ball rolling?

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