A Guide for Executors and Business Owners in Probate
When a business is part of an estate, the challenges are as much financial as they are legal; we provide the strategic tax expertise and operational support needed to protect your company’s legacy.
When a business owner passes away, the probate process involves much more than just the distribution of personal assets.
A business is a living entity that requires immediate attention to ensure continuity for employees, suppliers, and customers.
For an executor, the goal is twofold: to maintain the operational stability of the enterprise and to protect its value from unnecessary tax erosion.
Understanding the Impact of Business Structure
The “rules of play” for probate are determined by how the business was originally structured. Each requires a different approach to maintain continuity:
- Sole Traders: Legally, the business and the individual are one and the same. Upon death, business bank accounts are typically frozen, and the business technically ceases to trade. Unless the Will specifically grants the executor the power to continue trading, the business may have to close immediately, which can be devastating for employees.
- Partnerships: These are usually governed by a Partnership Agreement. Without one, a partnership can automatically dissolve upon the death of a partner under the Partnership Act 1890. It is vital to check for “buy-out” clauses that allow surviving partners to purchase the deceased’s share.
- Limited Companies: A company has its own legal identity and survives its owners. However, if the deceased was the sole director and shareholder, the company can hit an “operational deadlock” where no one has the authority to sign contracts or pay staff. In these cases, we work with executors to use the company’s Articles of Association to appoint new management as quickly as possible.
The Role of Professional Valuation
HMRC scrutinises business valuations more closely than almost any other asset class. A simple “book value” is rarely enough; executors must establish a Fair Market Value at the date of death. This involves valuing intangible assets such as goodwill, intellectual property, and brand reputation.
As accountants, we provide robust valuations that stand up to HMRC investigation. We also identify “excepted assets” such as large cash reserves or personal investments held within the company that do not qualify for tax relief and must be handled differently to avoid overpaying Inheritance Tax.
Business Property Relief (BPR) and the 2026 Changes
Currently, many trading businesses qualify for 100% Business Property Relief (BPR), meaning they can be passed on to the next generation without an Inheritance Tax bill. However, this is due to change significantly.
The New Cap from 6 April 2026: The government is introducing a £2.5 million allowance for 100% relief. Any qualifying business value above this threshold will only receive 50% relief, resulting in an effective tax rate of 20% on the excess.
- Transferability: Crucially, any unused portion of this £2.5 million allowance can be transferred to a surviving spouse or civil partner. This means that with correct planning, a couple can protect up to £5 million of business assets.
- The AIM Trap: Shares on the Alternative Investment Market (AIM), which previously enjoyed 100% relief, will automatically move to a 50% relief rate regardless of the estate’s value.
Essential Steps for Business Executors
Managing a business estate requires balancing legal duties with commercial reality. To protect the company’s value and your legal standing, follow this condensed timeline:
Immediate (Days 1–14):
Check the Will for “Business Power” clauses to ensure you have the legal right to trade. Notify the bank and insurers immediately, and appoint a new director if the deceased was the sole board member to avoid operational deadlock.
Assessment (Weeks 2–8):
Review Shareholders’ Agreements or Partnership Deeds to see if they restrict who can inherit shares. Instruct us to perform a formal Probate Valuation; HMRC requires a “Fair Market Value” that goes beyond simple book balances.
Tax & Strategy (Months 2–12):
Inheritance Tax is usually due within six months. We prioritise your Business Property Relief (BPR) claims to shield the estate from tax. Finally, we assist with the legal transfer of shares and final Companies House filings once probate is granted.
How Compass Accountants Can Help
Managing a business through probate requires a blend of financial precision and commercial empathy. We assist executors by providing expert valuations, navigating the complex 2026 BPR transition, and ensuring that the tax burden is minimised.
Whether the goal is to sell the business as a going concern or transfer it to the next generation, we ensure the process is handled with the integrity your loved one’s legacy deserves.
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