Wills for Business Owners

Why business owners face unique risks

For most people, drafting a will is principally about deciding who receives what. For a business owner, the stakes are considerably higher. Your death — without adequate planning — could:

• Force a rushed sale of the business at undervalue to pay IHT
• Leave your co-directors or partners unable to operate the business during a prolonged probate process
• Trigger conflicts between your personal beneficiaries and your business partners
• Remove key person protections just when they are most needed
• Cause a profitable business to fail simply because no one has legal authority to run it

None of these outcomes is inevitable. All of them are preventable with the right will and surrounding structures.

What happens to a business on the owner’s death?

The answer depends on the structure of your business:

Sole trader: Your business assets form part of your estate. Your executors have authority to deal with them, but they may not have the expertise, authority, or practical ability to keep the business running. Contracts may lapse, customers may leave, and employees may not be paid on time. A sole trader business can be left to a beneficiary in your will, but only if they are both willing and able to take it on.

Partnership: On death, your partnership share passes under your will, but your partnership agreement governs what happens to it. Many partnership agreements contain provisions that allow surviving partners to buy out the deceased partner’s share. Without such an agreement — or a will that acknowledges it — conflicts between your estate and your partners are almost inevitable.

Limited company: Your shares pass under your will. Your beneficiaries inherit the economic interest (dividends, proceeds on sale) but may face significant obstacles in exercising any control, particularly if the company’s articles of association contain restrictions on share transfers, or if co-shareholders have pre-emption rights (the right to buy your shares before they can be transferred elsewhere).

Business Property Relief — the basics

Business Property Relief (BPR) is the single most important IHT relief for business owners. At its simplest, it allows qualifying business assets to pass free of IHT.

100% BPR — complete IHT exemption — applies to:

• A sole trader’s business
• A share in a trading partnership
• Unquoted shares in a qualifying trading company (including AIM-listed companies)
• Certain assets used in a qualifying business

50% BPR — halves the IHT charge — applies to:

• A controlling shareholding in a quoted trading company
• Land, buildings, machinery or plant owned by the deceased personally but used in a qualifying company or partnership

The impact is transformative. A business worth £2,000,000 with 100% BPR passes IHT-free. Without BPR, the IHT bill would be £700,000 (after a £325,000 NRB) — a sum that would typically require a forced sale of the business.

BPR conditions and pitfalls

BPR is not automatic. The conditions are specific, and HMRC scrutinises claims carefully.

Key conditions:

• Two-year ownership: The business or shares must have been owned for at least two years immediately before death. Acquiring new shares or a new business interest within two years of death may mean that interest does not qualify — even if the rest of the business does.
• Trading test: The business must be 'wholly or mainly' a trading business. A business that derives a significant proportion of its value from investment activities — including property investment — may fail the trading test. Mixed trading and investment businesses are particularly vulnerable.
• Not subject to a binding contract for sale: If you have agreed to sell your business before death and contracts are exchanged, BPR may not be available. This can arise in unexpected ways during a sale process — another reason why active M&A situations require urgent estate planning review.
• Excepted assets: Even within a qualifying business, assets not used wholly or mainly for business purposes are 'excepted assets' excluded from BPR. Excessive cash balances, personally used property within the business structure, and investment assets can all be treated as excepted assets.

The proposed BPR reforms from April 2026

The Autumn Budget 2024 announced significant changes to BPR and APR that, if enacted as proposed, will take effect from 6 April 2026.

The proposed change: BPR and APR will be capped at a combined £1 million at 100% relief. Above this combined cap, relief drops to 50% — meaning an effective IHT rate of 20% (40% × 50%) on the excess.

Impact: A business owner with a business worth £3,000,000 (and no other assets qualifying for BPR) would currently pay no IHT on the business. From April 2026, on the proposed basis:

• First £1,000,000: 100% BPR — no IHT
• Remaining £2,000,000: 50% BPR — effective IHT of £400,000

Sole traders and partnerships

Sole traders: Consider naming a specific person in your will to take on or wind up your business, giving your executors clear authority to continue running the business in the short term. Your will should also address:

• What happens to business debts (which remain your personal debts)
• Outstanding contracts and client relationships
• Business bank accounts and credit facilities
• Employee contracts

Partnerships: Insist on having a current, signed partnership agreement before finalising your will. Your will should be consistent with it. Key issues:

• Does the partnership dissolve on a partner’s death (the default under the Partnership Act 1890) or can it continue?
• Do surviving partners have the right to buy out the deceased partner’s share?
• At what valuation?
• Funded by what means — cross-option agreements and life assurance?

Company shares and shareholders’ agreements

For business owners who are company shareholders, a shareholders’ agreement is just as important as a will — and the two must be designed together.

Cross-option agreements: A cross-option agreement (sometimes called a 'double option agreement') allows the surviving shareholders to buy the deceased’s shares from the estate at an agreed price, and the estate to sell the shares to the surviving shareholders at the same price.

The 'double option' structure — both sides having an option rather than an obligation — is critical for BPR purposes. A binding obligation to sell would disqualify the shares from BPR at death. An option structure preserves BPR while still giving both sides a mechanism to effect the buyout.

Funding the buyout: Cross-option agreements are only useful if the surviving shareholders have the funds to buy the deceased’s shares. The usual solution is cross-option life assurance — each shareholder takes out a life policy on the others’ lives, written in trust for the surviving shareholders, so that the payout funds the purchase.

Valuation: The agreement must specify how the shares are valued on death. Common approaches include:

• A formula based on profits, turnover, or net assets
• An independent valuation by a named firm or a jointly appointed valuer
• A fixed price (usually unsatisfactory as it quickly becomes outdated)

Key person life assurance

Key person insurance pays out to the company if a key individual (often an owner-director) dies. It covers the financial impact of losing someone whose skills, relationships, or knowledge are central to the business — loss of profits, recruitment costs, and the time taken for a replacement to reach full productivity.

Unlike shareholder cross-option policies, key person policies are owned by and paid out to the company. The premiums are a business expense (subject to HMRC conditions), and the payout helps the business survive the loss of a critical person.

Your will does not control key person insurance — but if you are both a key person and a shareholder, make sure both types of cover are in place and that your will and shareholders’ agreement properly reflect the arrangements.

Lasting Powers of Attorney for business owners

A will only takes effect on death. What happens if you lose mental capacity while alive — through accident, illness, or dementia?

A Lasting Power of Attorney for Property and Financial Affairs allows your chosen attorney to manage your financial and business affairs if you become incapacitated. Without one:

• No one has automatic authority to sign contracts, manage bank accounts, or run your business
• Your family must apply to the Court of Protection for a Deputyship — a process that is slow, expensive, and uncertain

Business owners should put LPAs in place at the same time as their will. A business-specific LPA clause can give your attorney specific authority to continue or manage the business, and restrict certain decisions (such as selling the business) without court approval.

Family investment companies and holding structures

Some business owners use a family investment company (FIC) or a holding company structure to manage wealth and succession. These can offer:

• Control over how assets are distributed across generations
• Income tax efficiencies through dividend management
• A platform for lifetime gifting while retaining control
• Potential IHT advantages over direct ownership

FIC structuring is complex and requires bespoke professional advice. However, if you already operate through a holding structure, your will must correctly reflect your shareholding, any alphabet share structures, and any shareholder agreements governing the FIC.

What to include in your will as a business owner

At minimum, your will should address:

• Who inherits your business interests (shares, partnership share, sole trader assets)
• Whether executors/trustees have authority to continue running or managing the business
• Whether you want the business sold or retained
• Who has authority to act during the probate process (consider appointing a professional executor with business experience)
• BPR-friendly structuring — e.g. ensuring business assets are left in a way that preserves rather than jeopardises BPR
• Interaction with any shareholders’ agreement or cross-option arrangements
• Any specific wishes about employee welfare or business continuity

A Letter of Wishes alongside your will can give practical guidance to executors who may not know the business — key contacts, where documents are held, who to speak to at the bank, and so on.

Frequently asked questions

Does my business automatically get Business Property Relief on death?

BPR is not automatic — it must be claimed on the IHT return, and HMRC may challenge whether the conditions are met. The two-year ownership requirement, the trading test, and the treatment of any excepted assets are all scrutinised. Professional advice in preparing the IHT return is essential.

Can my spouse inherit my business shares and claim BPR?

Shares left to a spouse qualify for the spouse exemption (no IHT regardless of BPR), but if the spouse later leaves the shares to the next generation, BPR applies at that point — provided the spouse owned the shares for two years and all other conditions are met. The two-year clock restarts on any new acquisition.

What if my business is worth more than £1 million — will BPR still apply after April 2026?

Under the proposed changes, BPR would apply at 100% on the first £1 million of qualifying business property (combined with APR), and at 50% on the excess — giving an effective IHT rate of 20% on the excess. These are proposals, not yet law, but planning should begin now.

Do I need a shareholders’ agreement even if I’m the majority shareholder?

Yes. A shareholders’ agreement benefits majority and minority shareholders alike. For estate planning purposes, it ensures clarity about what happens to your shares on death, avoids disputes between your estate and co-shareholders, and enables cross-option arrangements to preserve BPR.

My business has significant property assets. Does BPR still apply?

It depends. If the property is used in the trading business (e.g. a factory or office from which the company trades), it may qualify. If the company’s primary activity is property investment or letting, BPR is unlikely to be available. Mixed businesses require careful analysis.

Can an LPA cover my business as well as personal finances?

A Property and Financial Affairs LPA covers all financial matters, including business assets. However, your company’s articles and any shareholders’ agreement may also be relevant — an attorney’s authority to act in a company context depends on those documents as well as the LPA.