In the UK, inheriting a business usually means the business becomes part of the deceased person’s estate, and it is passed on according to their will or, if there is no will, under the rules of intestacy.

There are over 5 million family-owned businesses in the UK, accounting for the vast majority of private sector firms. Research indicates that around two in every five medium-sized family businesses are passed down through at least one generation.

If there is no will, the intestacy rules decide who inherits, usually starting with a spouse or civil partner, then children. A significant proportion of UK adults do not currently have a will, which can make business succession more complicated and slower.

Evidence from Family Business suggests that around two in every five (approx. 40%) medium-sized family firms are passed down through at least one generation.

Before anyone can take control, the estate normally has to go through probate, which often takes between six and twelve months, and inheritance tax may be due depending on the value of the business and whether reliefs apply.

How inheriting a business works

When a business owner dies, their personal representatives must value the business as at the date of death. This applies whether the business is a sole trader operation, a partnership share, or shares in a limited company. The value is included in the overall estate for probate and tax purposes.

If there is a valid will, the business interest passes to the named beneficiary. If there is no will, the intestacy rules decide who inherits, usually starting with a spouse or civil partner, then children. Around 40% of UK adults do not have a will, which can make business succession more complicated and slower.

Probate is needed in most cases before assets can be transferred. Straightforward estates often take six to twelve months to deal with, but complex estates involving businesses can take longer, especially if there are disputes, unclear records, or tax questions.

How does inheriting a business work for sole traders and limited companies?

If the deceased was a sole trader, the business and the individual are legally the same. This means the business does not continue automatically as a separate legal entity. The executor may run it temporarily, but technically ownership transfers through the estate. Contracts, staff arrangements and supplier agreements may need reviewing.

If the business is a limited company, the deceased owned shares rather than the business assets directly. Those shares are transferred under the will or intestacy rules. The company itself continues to exist. The new shareholder then has rights according to the company’s articles of association and any shareholders’ agreement.

Company documents can restrict who can inherit shares. For example, some agreements give other shareholders first refusal to buy the shares. This can delay or change who ultimately controls the business.

What happens with partnerships and multiple owners?

Things are more complex when there are multiple partners. In a traditional partnership, the partnership agreement is key.

Many agreements state that the partnership dissolves automatically on the death of a partner, unless the remaining partners agree to continue.

The deceased partner’s share becomes part of their estate, but the remaining partners may have the right to buy that share. If there is no clear agreement in place, disputes can arise over valuation, control and future profits. This is one reason why clear succession planning is strongly advised for business owners.

In a limited liability partnership, the rules are set out in the LLP agreement. Again, there may be provisions controlling how a deceased member’s interest is handled. Without clear paperwork, sorting out ownership can take months and may require legal action.

Is Inheritance tax paid on inheriting a business?

Inheritance tax may be payable on the value of a business forming part of an estate. The tax is generally paid by the estate before assets are distributed to beneficiaries, although the availability of reliefs can significantly reduce the liability.

Business Property Relief can reduce the taxable value of a business or shares by 50% or even 100%, depending on the circumstances. To qualify for full relief, the business must usually have been owned for at least two years before death and must be a trading business rather than mainly investment based.

This relief means that in many cases, family businesses can pass to the next generation without a large inheritance tax bill. However, if the business does not qualify, or if the estate includes significant non business assets, tax may still be payable.

The standard inheritance tax rate in the UK is 40% on the value of an estate above the nil rate band, which is currently £325,000. In the event that families or individuals have a huge tax bill to pay, they may seek options to help bridge this gap, using a specialist finance provider like Provira, Ampla Finance or The Level Group.

What are common complications with inheriting businesses?

Significant complications can arise when inheriting larger or more complex businesses. Professional valuations are often needed, especially where goodwill, intellectual property or complex accounts are involved. HM Revenue and Customs may question the figures if they believe the value is too low.

Disputes between family members can also slow things down. If more than one person inherits, they may disagree about whether to run, sell or wind up the business. These disagreements can lead to costly court proceedings.

Other issues arise when there are foreign jurisdictions, multiple currencies and several investors involved.

Why planning matters

Because probate can take many months and tax can be significant, good planning is essential. Wills, partnership agreements and shareholders’ agreements should clearly set out what happens on death.

Millions of businesses in the UK are family owned, so clear succession planning is not just sensible but critical. Without it, inheriting a business can become a long, expensive and stressful process for those left behind.

Disclaimer: This article is provided for general informational purposes only and does not constitute legal, tax, financial or investment advice. The rules surrounding inheritance, probate and business succession in the UK can vary depending on individual circumstances and may change over time. Readers should seek independent professional advice from a qualified legal or tax adviser before making any decisions relating to estate planning or business succession.