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Summary of current rules
The UK has long been a popular “holding company” jurisdiction in part due to:
- the UK being party to a wide number of Double Tax Treaties;
- a generous exemption from corporation tax on most types of dividends received by a UK company; and
- BPR from Inheritance Tax (IHT) which means UK top companies of international trading companies are currently often not subject to IHT.
This means that many non-resident individuals use UK holding companies to hold both UK and non-UK trading companies. These include individuals who set up trading businesses in the UK before departing, as well as individuals who have never been UK tax resident.
UK Inheritance Tax (IHT) applies at a rate of 40% on death of the individual and 20% in respect of certain lifetime gifts to trusts and companies above a person’s available nil rate band of £325,000. Historically, non-resident individuals often did not have to be concerned about IHT exposure from using a UK holding company to hold UK and international trading companies, due to the application of BPR.
BPR currently provides either 100% or 50% relief from inheritance tax (IHT) on qualifying business assets held for at least two years. Full relief applies to interests in a business, partnership shares, and unquoted shares in trading companies (including AIM-listed shares).
Updated rules from 6 April 2026
The government recently announced that each individual will have a £2.5 million combined allowance for business and agricultural property assets that currently qualify for 100% relief (excluding AIM shares). Any value above this allowance will only benefit from 50% relief, leaving the excess exposed to a 20% IHT charge on death of the individual. The IHT charge is on the individual’s estate not the company itself, and so when due, profits will often need to be distributed in order to fund payment, potentially triggering further tax.
The allowance refreshes every seven years, and the government recently confirmed unused allowances can be transferred to a surviving spouse on death of the individual (resulting in a possible £5m of relief for qualifying assets on the death of the surviving spouse or civil partner). AIM shares will only qualify for 50% relief and will not count toward the £2.5 million individual allowance. Lifetime gifts (PETs) will not use the allowance unless the donor dies within seven years.
For trusts established before 30 October 2024, each trust will have its own £2.5 million allowance for qualifying business and agricultural assets, with any additional value subject to IHT at half the usual rate. From 6 April 2026, these trusts will also face exit and periodic charges at up to 3% on the value of assets exceeding £2.5 million. For trusts created on or after 30 October 2024, a single £2.5 million allowance will apply across all trusts created by the same settlor, allocated chronologically.
Why it matters to international clients
The forthcoming changes to BPR mean that owning a UK topco that holds offshore trading subsidiaries would result in the entire structure falling within the limited BPR allowance, potentially exposing significant value to IHT.
Non-residents (who are also not Long Term UK Residents or have left the UK) with UK topcos should review their structures urgently. Due to anti-forestalling measures, it is often not advisable to simply gift shares in a UK topco to an offshore company or structure. Instead, a corporate reorganisation of the UK company may be the best option to insert a non-UK incorporated company. We have been actively helping clients with business interests above the £2.5m threshold ahead of 6 April 2026.
Should you require any advice in relation to the changes to BPR, or if you have a UK topco which you are concerned may be impacted by the changes to the rules, please contact a member of our Tax, Trusts & Succession Team who would be happy to help.