Gifting vs Trusts: Planning For Inheritance Tax Before April 2026

If you're a business owner with significant value tied up in a family trading company, AIM shares, or other Business Property Relief (BPR) qualifying assets, the clock is ticking on a valuable inheritance tax (IHT) planning opportunity. From 6 April 2026, the UK government will impose a £1 million lifetime cap on BPR, including for transfers into trusts – dramatically altering the IHT landscape.

Until then, there's a unique opportunity window to transfer unlimited value in BPR qualifying assets into trust with no IHT charge. Whether you're considering direct gifts to family or using trusts to retain control and flexibility, now is the time to act strategically.

We consider in further detail what you need to know about gifting to individuals vs trusts below, and how to capitalise on this opportunity before the rules change.

What Is Business Property Relief (BPR)?

For assets which have been held for two years, BPR reduces or eliminates IHT on certain business assets, including:

• Unquoted trading company shares

• Interests in partnerships or sole trades

Gifting To Individuals Or Trusts: What’s The Difference?

Gifting to an individual is classed as a Potentially Exempt Transfer, meaning there is no IHT due if you survive seven years after the gift. By contrast, gifting to a trust is treated as a Chargeable Lifetime Transfer, with no IHT due if BPR applies.

When you gift directly to an individual, you lose control over the assets immediately. With a trust, control is retained by the trustees, who can decide how and when beneficiaries benefit.

A direct gift is fixed to one recipient, whereas a trust can provide flexibility by allowing a single gift to benefit multiple or even future beneficiaries.

In terms of IHT exposure, assets gifted directly fully leave your estate after seven years, while trust assets are generally outside your estate immediately—provided the BPR conditions continue to be met.

In terms of planning, gifting to individuals is relatively simple but can trigger Capital Gains Tax, depending on the gift. Gifting to a trust is more complex and requires formal legal and trust documentation.

Finally, gifts to individuals are exposed to donee risks such as divorce, creditors, or poor health. Assets held in trust, however, are protected within the trust structure and therefore offer an additional layer of security.

Why Act Before 6 April 2026?

From that date:

• A £1 million cap per person will apply to BPR for lifetime transfers into trust

• Only 50% relief will apply to amounts above the £1 million cap

• AIM shares will only qualify for 50% BPR, regardless of value.

However, until 6 April 2026, there is no cap on any BPR-qualifying assets (including AIM listed shares), and so you can transfer any value of BPR assets into trust without charge.

To illustrate the difference, consider a married couple transferring £3 million of shares in a family-owned trading company shares into a trust:

If they act before 6 April 2026, the gift qualifies for 100% BPR, there is no lifetime cap, and the transfer is exempt from IHT under current rules. The trustees retain full control of the £3 million of shares, with no immediate tax cost.

If they wait until after 6 April 2026, the same £3 million gift still qualifies for BPR, but only the first £2 million (two £1 million lifetime caps) is fully relieved. The remaining £1 million is subject to 50% relief, meaning £500,000 becomes chargeable. This results in an immediate 20% lifetime IHT charge of £100,000. The trustees still receive the full £3 million in shares but must fund £100,000 in IHT at the time of transfer.

Periodic and exit charges would then be calculated under the new rules, taking into account the two £1 million allowances.

Planning Opportunities For 2025/26

Here’s how to make the most of this window:

• Consider transferring BPR assets into a discretionary trust before 6 April 2026:

• No IHT charge on entry if assets qualify

• Trustees must usually hold assets for 2 years to retain BPR

• If the settlor dies within 7 years and after the 6th April 2026 the new rules will apply

• Exit and 10-year charges will apply using the new rules

• Use both spouses’ allowances by splitting ownership and settling assets separately

• Review AIM portfolios to confirm BPR eligibility (e.g. trading vs investment activity)

Key Considerations:

• Trusts must retain BPR-qualifying assets to avoid periodic or exit charges without the allowances

• Selling BPR assets in trust may result in future IHT unless reinvested in qualifying assets

• Gifts to individuals are still a useful technique – in the right circumstances.

Final Thoughts

There remains an opportunity to pass on significant business wealth without triggering IHT, but it closes on 5 April 2026. If you own AIM shares or business assets, now is the time to review your wealth and estate plan.

We know that trusts can be a daunting topic for those who have not previously utilised this tool. We are able to guide you through this process from start to finish. While trusts are not suitable for every situation, they can be a powerful part of an estate planning strategy.

If you wish to discuss whether trusts may be a viable option in your personal circumstances, then please do not hesitate to contact your usual Crowe contact or by reaching out to us.