Passing a business to the next generation is the oldest form of succession planning, and one of the most complex. Family succession involves transferring ownership and control to children, other family members, or a long-trusted colleague, and it requires careful management of both the practical and emotional dimensions of the handover.
How does family succession work?
There is no single structure. The transfer can be a sale at market value (which generates a capital gain for the outgoing owner and a financing challenge for the next generation), a gift of shares (which may trigger an immediate CGT charge without a cash receipt to fund it), or a staged handover over several years combining gifts, sales, and gradual withdrawal from the business.
The most tax-efficient approach typically involves a combination of Business Property Relief (BPR), lifetime gifts, and careful use of annual CGT and IHT allowances, designed over a multi-year period with specialist advice. The October 2024 Budget made changes to BPR that affect how IHT applies to business assets passing on death, which is relevant for owners considering family succession as part of estate planning.
Who does family succession suit?
Family succession is appropriate where there is a willing and capable next generation: a child or family member who has been involved in the business, understands it, and can credibly lead it forward. It is not appropriate simply because family is involved. The most common failure in family succession is the transfer of a business to someone who did not want it or was not ready for it.
It suits businesses where the owner's primary goal is legacy and continuity rather than maximising financial return, and where the family relationship can withstand the commercial pressures of the handover process.
Financial and tax considerations
Business Property Relief (BPR) currently provides 100% relief from inheritance tax on qualifying business assets, up to £1m per estate (as of April 2026, following the 2024 Budget cap). Above that level, 50% BPR applies. This means IHT becomes a significant consideration for larger business estates.
Capital gains tax on a lifetime gift of shares is triggered at the point of transfer, calculated on the market value at the time of the gift. Holdover relief may be available in certain circumstances, deferring the gain until the recipient sells. Professional advice is essential.
| Tax consideration | Position (April 2026) |
|---|---|
| BPR on qualifying business assets (to £1m) | 100% IHT relief |
| BPR above £1m cap | 50% relief: IHT applies to the remaining 50% |
| CGT on lifetime gift of shares | Calculated on market value at transfer; holdover relief may apply |
| CGT rate (BADR eligible gains to £1m) | 18% |
Pros and cons of family succession
Advantages: Maximum continuity of culture, values, and brand; can be structured over a long period; may allow the owner to remain involved in a reduced capacity; strong legacy outcome.
Disadvantages: Complex tax planning required; emotional dynamics can complicate commercial decisions; next generation may not be ready or willing; risk of inter-family conflict if ownership is split across multiple family members; no cash event for the owner unless structured as a sale.
This page contains general information only. Speak to a qualified corporate finance adviser or tax adviser before making any decisions regarding the sale or transfer of your business.