This article was last updated 0 months ago and may not represent current law.
If you own shares in a private company, they are part of your estate when you die, and inheritance tax is charged on what they’re worth unless a relief applies. For years most owners of trading companies didn’t have to think about it, as business property relief took the whole value of the shares out of the calculation. That changed on 6 April 2026, when full relief was limited to an allowance for each person.
I should say that I don’t give tax advice, and you’ll need your accountant or a tax adviser for the numbers. What I deal with is the legal side, which means the company’s articles, the shareholders agreement, cross options and the paperwork for gifting or transferring shares. The way those documents are written affects the tax and it also decides who ends up owning the company, so this article sets out the current rules briefly and then goes through the legal options.
How inheritance tax applies to private company shares
The value of your shares at the date of your death goes into your estate along with everything else you own, and inheritance tax is charged at 40% on the amount above the available thresholds. The difficulty with private company shares is that they can't easily be turned into cash, so if there is tax to pay on them, your family may struggle to raise the money without selling some or all of the business.Business property relief from 6 April 2026
Business property relief (BPR) reduces the value of qualifying business assets for inheritance tax purposes. Shares in an unlisted trading company can qualify, generally where you have owned them for at least two years, but a company whose business is mainly holding investments (letting property or a share portfolio, for example) doesn't.Before April 2026, qualifying shares got 100% relief whatever they were worth. Under Schedule 12 to the Finance Act 2026, which applies to deaths and other transfers on or after 6 April 2026, 100% relief is limited to an allowance of £2.5 million, and qualifying value above that gets 50% relief. The allowance is for each person and not for each business, and it covers business property and agricultural property together, so if you own farmland as well, the two share it. It is also measured over seven years, which means relief used on gifts in the seven years before your death comes off it. Any part of the allowance you don’t use can pass to your surviving spouse or civil partner.
Separately, most unused pension funds will be brought into inheritance tax for deaths on or after 6 April 2027, so for some owners the estate as a whole is about to get bigger as well.
If your shares are worth well under £2.5 million and qualify, not much may have changed for you on the tax, although the legal points below apply whatever the company is worth. If they are worth more than that, or you aren’t sure whether the company qualifies, ask your accountant for a view.
The articles and the shareholders agreement
Unless the company's articles or a shareholders agreement say otherwise, your shares go to whoever your will says, which is often your spouse or children. Your co-owners may then find they have a new shareholder who doesn't work in the business, and your family may be holding shares they can't sell and which pay them nothing unless the directors declare a dividend. I've written about this in more detail in what happens when a shareholder of a company dies.A shareholders agreement can deal with it in advance. It can say who is allowed to buy or inherit the shares, how they will be valued and when the price is paid, and it can stop shares passing to people the other owners never agreed to go into business with. I draft shareholders agreements for owner-managed companies, and what happens on a shareholder’s death is always covered.
If you are the only shareholder and the only director, the first problem is a different one, as the company can be left with nobody who has authority to run it. That’s covered in what happens when a sole shareholder and director dies, and it is usually fixed by checking and updating the articles.
Cross option agreements and life insurance
A cross option agreement gives the surviving shareholders an option to buy a deceased shareholder's shares, and gives the estate an option to make them buy. Whichever side exercises its option, the shares go to the survivors and the family receives the money. It is usually backed by life insurance, with each shareholder insured so that the proceeds pay for the shares and the survivors don't have to find the price out of their own pockets or the company's cash.The reason it is done with options, and not with a straightforward agreement that the shares will be sold on death, is BPR. Shares which are subject to a binding contract for sale can lose the relief, and HMRC’s view is that an agreement obliging the personal representatives to sell and the survivors to buy is a binding contract, whereas an option arrangement isn’t. So the wording of the agreement needs to be right, and the insurance policies need to be set up to match it, which is a job for your financial adviser alongside me.
Giving shares away during your lifetime
You can give shares to your children or other family members while you're alive. The general rule is that if you live for seven years after making a gift it falls outside your estate, and if you don't it is brought back into the calculation. The new allowance applies to those failed gifts as well, including gifts made after 29 October 2024 where the person who made them dies on or after 6 April 2026 and within seven years. A gift of shares can also have capital gains tax consequences, so speak to your accountant before you make one.On the legal side, a gift of shares is a transfer like any other. The articles and any shareholders agreement may give the other shareholders a right of first refusal or require the directors’ approval, so those need checking first, and then there’s a stock transfer form, board minutes and an update to the company’s registers, all of which I can deal with.
You also need to think about control, as ordinary shares carry votes, and once you’ve given them away you can’t take them back. If you want your children to have the value but aren’t ready to hand over the decisions, the company can create a separate class of shares with different rights to votes and dividends, and you give away those.
Leaving shares to family who won't work in the business
The same question comes up where the shares are going to a spouse or children under your will and they aren't going to be involved in running the company. You need to decide who has control after you, and how the family gets paid, as shareholders only receive money if a dividend is declared.There are a few ways of dealing with it. The family can hold a class of shares with rights to dividends but no votes, or limited votes. The shareholders agreement can set out a dividend policy, so the family aren’t dependent on the goodwill of whoever is in charge. The working shareholders or the company can be given an option to buy the family’s shares later on at a fair value. Or the shares can go into a trust under the will, with trustees who can deal with the directors on the family’s behalf.
Trusts and family investment companies
Shares can be put into a trust during your lifetime, so that trustees hold them for the benefit of your family. A transfer into trust can itself give rise to an inheritance tax charge, and trusts have their own allowance and their own rules under the 2026 changes, so this needs tax advice before anything is signed. I don't set up trusts myself. My private client colleagues at Nexa, Samantha Downs, Donna Taylor and James Winfield, do that, and I deal with the company side, such as checking that the articles allow shares to be transferred to trustees.A family investment company is a company whose shareholders are members of the family, usually with different classes of shares for parents and children. They are generally used to hold investments and are driven by tax, so your accountant is the starting point for whether one makes sense for you.
Holding companies
Many business owners look at inserting a holding company above the trading company, which is usually done by way of a share for share exchange with HMRC clearance. Whether that helps or harms the inheritance tax position depends on what the group does and what it holds, and that's a question for your accountant before any legal work starts. Once the structure has been decided, putting the holding company in place is work I do.Wills and lasting powers of attorney
None of this works properly unless your will fits with the company documents, as each one can undo the other. A will that leaves your shares to your children is of little use if the articles oblige your executors to offer them to the other shareholders first. I don't write wills or lasting powers of attorney. Those are done by my private client colleagues, and I'd introduce you so that the will and the company documents are looked at together. There's more on how that works on my page about estate planning for business owners.What to do now
Dig out the company's articles and any shareholders agreement, and read what they say happens to a shareholder's shares on death. If they say nothing, or you have no shareholders agreement at all, that's the first gap to deal with. Ask your accountant for a rough idea of what your shares are worth and whether they qualify for BPR, so you know where you stand against the £2.5 million allowance. And check when your will was last looked at, and whether whoever wrote it had seen the company documents.I help business owners with the company side of this. If you’d like me to look at your articles and shareholders agreement and tell you where the gaps are, get in touch.
Written by Steven Mather, a business solicitor acting on company sales and purchases. This is general information about the law, not legal advice on your situation. Law correct as at .
