UK-wide: A Family Offices & Funds Structuring Overview

Inheritance Tax Will Force Family Businesses to Sell Stakes – Often on the Wrong Terms

Recent inheritance tax reforms will create material funding pressure for UK family businesses. The issue is not only the tax itself, but how it is met: the funding route – and the terms on which it is implemented – will determine whether control is retained and value preserved through transition.

From April 2026, businesses that could previously be passed largely free of inheritance tax will face real, payable liabilities. For higher-value companies, the numbers are significant: a GBP300 million business could face an inheritance tax charge of GBP60 million on transfer.

The issue is not just the tax, but how and when it must be paid. The value of these businesses typically sits inside the business itself – working capital, contracts, people and future earnings – not as cash that can be used to meet a liability of that scale. As a result, families are required to create liquidity, often through transactions and at a time they would not otherwise choose.

Inheritance tax does not force a sale. It forces a funding decision – on terms that determine who controls the business thereafter.

While much of the focus has been on ownership structures, the practical question is how the liability will be funded. That decision determines whether control is retained – or traded to meet a tax bill.

At that point, it becomes a funding problem. The liability must be paid, and in most cases the cash is not there. That leaves a limited set of options: sell a stake, bring in capital, borrow or extract value ahead of transition. These are not strategic choices. They are decisions taken to meet a funding requirement – and that is reflected directly in pricing, governance and control.

This matters beyond any single family. Family businesses sit at the centre of the UK economy. They account for the vast majority of private companies, employ more than half the workforce and generate close to GBP1 trillion in value each year. What happens at the point of transition therefore has wider consequences for investment, employment and long-term growth.

A business that chooses when to sell sets the terms. A business that needs to sell accepts them.

The difference is timing.

Where a transaction is planned, there is time to prepare, to shape the story and to run a process that creates competition. Where it is driven by a funding requirement, that flexibility disappears. The process is compressed. Buyers know why the capital is being raised and price accordingly.

The process itself reinforces this. Diligence is accelerated, information asymmetry increases and pricing becomes defensive. In the absence of competition, there is no upward pressure on value. Certainty of execution becomes more important than optimising terms.

In practice, the outcome is consistent. Fewer bidders. Weaker negotiating leverage. Lower pricing.

Minority stakes are sold at a discount to intrinsic value. Investors secure board representation and veto rights. Exit horizons are introduced that were not part of the original plan. These are not marginal adjustments. They change how the business is run.

Value is not lost in theory. It is given up in the price, the terms and the control required to raise the cash.

Borrowing is often the first response. It avoids an immediate sale and preserves ownership but it changes how the business operates.

A facility of this scale introduces covenants. Cash flow is redirected towards servicing debt. Investment is constrained and distributions are limited. Decisions that would otherwise be taken on commercial grounds are reframed through a financing lens.

Borrowing does not remove the problem. It defers it. If trading weakens or markets tighten, the position can shift quickly. Covenants come under pressure, refinancing becomes uncertain and a sale becomes more likely – now from a weaker position.

Control rarely moves in a single step.

It shifts incrementally. A minority sale introduces a new shareholder with rights. A second round of funding builds on that position. Valuation is anchored by earlier transactions. Governance rights accumulate. Each decision is defensible in isolation. Taken together, they change who controls the outcome.

The effect is cumulative. Board composition evolves. Decision-making authority shifts. Strategic choices are increasingly influenced by external stakeholders. The business continues – but control, in practical terms, is no longer exercised in the same way.

This is not only an ownership issue. It is a value issue.

That GBP60 million is capital that would otherwise have been reinvested in the business –supporting growth, acquisitions or resilience through economic cycles. Once removed, it must be replaced. The terms on which it is replaced determine how much of that value is retained.

Where transactions are forced, value is realised earlier than intended – often at a point when the business is not best placed to be sold. The distinction between a planned process and a forced transaction is not marginal. It is where value is lost.

Not all families will reach the same outcome. The difference is not the size of the business or the level of the tax. It is whether options are created before the liability crystallises.

Where they are not, the funding requirement dictates the transaction. Where they are, the business retains the ability to decide how and when capital is introduced.

Some businesses are now using mechanisms such as PISCES –  the UK’s Private Intermittent Securities and Capital Exchange System, a regulated platform that allows shareholders in private companies to sell existing shares in periodic trading windows without a full sale or public listing.

In practical terms, this allows stakes to be sold in smaller tranches, at defined points in time and to selected investors. It replaces a single, forced transaction with staged liquidity. The effect is simple: it shifts the timing – and with it the balance of control – back to the seller.

Others address the issue internally. Bringing senior management into the equity structure creates both alignment and an internal route to partial liquidity. That can support succession without immediately introducing external control.

Where external capital is required, the choice of investor becomes critical. Capital aligned to long-term ownership behaves differently from capital driven by a defined exit horizon. One supports continuity. The other accelerates change.

At a structural level, many families are separating ownership and capital through family office structures. This allows liquidity to be managed independently of the operating business, reducing the need to force change at a single point in time.

There is also a more direct approach: pre-funding the liability.

A life insurance policy can provide the required cash at the point of transition. That does not remove the tax, but it changes how it is met. Instead of raising GBP60 million in a single transaction, the funding is put in place over time.

The economics are different.

A liability of this scale can typically be addressed through premiums measured in the hundreds of thousands per year, rather than a one-off extraction of capital. More importantly, it removes the need to transact under pressure.

This is not universal. It depends on timing, cost and structure. It may not be suitable where planning is undertaken late, where cash flow is volatile or where a disposal is already expected. It also addresses liquidity, not structure. It does not resolve questions of ownership, governance or succession.

Across all these routes, one point is constant.

Each funding decision changes the balance between ownership, control and future value.

Without a coherent strategy, decisions are taken sequentially. Each addresses an immediate requirement, but resets the position for what follows. Control moves incrementally. Value is given up in stages.

With a clear ownership, governance and capital framework, those trade-offs can be understood in advance. Capital can be introduced on terms that support long-term objectives. Control can be protected deliberately, rather than eroded over time.

The tax removes capital. The way it is replaced determines how much control – and how much future value – the family retains.

Family businesses will continue. But they will not look the same.

The tax sets the requirement. The terms on which it is funded – and whether those terms sit within a coherent governance and capital strategy – determine who ultimately controls the outcome.