Estate Planning for the Self-Employed UK 2026: Sole Trader Business on Death, Business Property Relief, LPA for Business, Pensions, and Life Insurance
A sole trader business dies with its owner — unless you plan. Without a will, an LPA, and a business continuity plan, your business bank accounts freeze, contracts terminate, and the business you built is lost. BPR (100% relief up to £1m) can eliminate IHT on qualifying sole trader business assets.
Self-Employed Estate Planning — Five Priorities
1. WILL: include specific business provisions — who winds up the business, how quickly, what happens to assets, client contracts, and employees. 2. LPA (PROPERTY/FINANCIAL AFFAIRS): register NOW (up to 20 weeks, £82). Without it, business bank accounts freeze immediately on incapacity — Court of Protection takes 6-12 months. 3. BPR: sole trader trading businesses (2+ years) qualify for 100% BPR on death — up to £1m combined cap from April 2026. Avoid excepted assets (excess cash, investment property). 4. LIFE INSURANCE IN TRUST: write all policies in trust — otherwise proceeds face IHT at 40%. No employer death-in-service scheme — you must arrange your own cover. 5. PENSIONS: review SIPP nomination before April 2027 (when DC pensions enter the IHT net). Spousal exemption still applies after April 2027.
| Topic | Rules / How It Works | Example | Practical Guidance |
|---|---|---|---|
| What happens to a sole trader business on death | SOLE TRADER BUSINESS ON DEATH — LEGAL CONSEQUENCES: a sole trader is not a separate legal entity from its owner. On the owner's death: (1) THE BUSINESS LEGALLY CEASES: there is no separate company or partnership to continue. The business simply stops — the owner is the business. (2) EXECUTOR TAKES CONTROL: the executor appointed under the will (or administrator under intestacy) is responsible for winding up the business. They have authority to continue the business ONLY for the purpose of winding it up — not to trade indefinitely. (3) BUSINESS BANK ACCOUNTS FROZEN: all bank accounts in the sole trader's name (business and personal) are frozen pending production of a grant of probate. This can take 4-6 months — longer if IHT is due or the estate is complex. Staff cannot be paid from the business account; suppliers cannot be paid; clients cannot receive refunds. (4) CONTRACTS TERMINATED: sole trader contracts with clients are typically personal contracts — they terminate on the owner's death unless the contract provides otherwise. If the business relied on personal service contracts, income stops immediately. (5) EMPLOYEES: employment contracts technically terminate on the employer's death, but the executor has statutory obligations to pay outstanding wages, redundancy (if applicable), and notice pay. Employees must be consulted and (if no continuation) made redundant. (6) INTELLECTUAL PROPERTY AND GOODWILL: the business's goodwill and IP form part of the estate — if saleable, the executor may be able to sell them; if not, they are lost. (7) LIABILITIES: all business liabilities (loans, outstanding supplier invoices, lease obligations, HMRC self-assessment liability) are debts of the estate — the executor must pay them before distributing to beneficiaries. | EXAMPLE — SOLE TRADER PLUMBER DIES WITHOUT A BUSINESS WILL: Gary runs a successful plumbing business as a sole trader — 3 employees, £200k turnover, £80k annual profit, van, tools, and an ongoing client base. Gary dies without a will. Under intestacy, his wife Janet takes the statutory legacy (£322k) plus half the remaining estate; his two children share the rest. WHAT HAPPENS TO THE BUSINESS: Janet applies for letters of administration (no will = no executor named). Processing takes 4 months — during which Gary's business bank account is frozen. His employees stop receiving wages (liability accrues). Three major client contracts terminate because the clients exercise their right to terminate on death. Gary's main apprentice finds a new job. A potential buyer who was interested in acquiring the business withdraws — the value has evaporated. After probate: Janet uses her powers as administrator to sell the van (£18k) and tools (£12k). Goodwill: no ongoing client base remains — valued at £0. The business that generated £80k/yr income has died with Gary — leaving the estate with only tangible asset value. WHAT GARY SHOULD HAVE DONE: a business will; LPA naming Janet or a trusted person to manage business affairs immediately on incapacity; notification to key clients and a succession plan (key employee or sale agreement pre-death); business continuity insurance. | SOLE TRADER ESTATE PLANNING CHECKLIST: (1) MAKE A WILL — including specific business provisions: who should wind up or continue the business; how quickly the business should be sold or closed; what happens to specific business assets (equipment, IP, client contracts, goodwill); whether a key employee should be given the right to buy the business at a specified price. (2) LPA FOR PROPERTY AND FINANCIAL AFFAIRS: this is critical for self-employed people — if you lose capacity (stroke, accident, sudden illness), your business bank accounts will be frozen and only an attorney under a registered LPA can operate them. An LPA enables a trusted person to manage business finances immediately — paying staff, collecting debts, making supplier payments — without waiting months for a Court of Protection deputyship. (3) BUSINESS BANK — NOTIFY KEY PERSONS: inform your bank that your LPA exists and register it with your business accounts. Some banks require the LPA to be registered with them before they will act. (4) KEY PERSON INSURANCE: a key person (key man) life insurance policy pays out to the business on the death of a key employee or business owner — providing funds to recruit a replacement, honour client commitments, or wind down in an orderly fashion. The premium is often a business expense deductible against corporation tax (if the business is a company). (5) NOTIFY CLIENTS IN ADVANCE: identify which client contracts have death/incapacity termination clauses. Consider redrafting future contracts to provide continuity if a business partner or designated successor can take over. (6) BUSINESS VALUATION: get the business professionally valued periodically — this determines the IHT exposure (before BPR) and informs life insurance cover needed. |
| Business Property Relief for sole traders — BPR up to £1m from April 2026 | BUSINESS PROPERTY RELIEF (BPR) — SOLE TRADERS: sole trader businesses can qualify for 100% Business Property Relief (BPR) under IHTA 1984 s105(1)(a). BPR removes the business value from the IHT calculation — potentially saving 40% IHT on qualifying business assets. QUALIFYING CONDITIONS FOR SOLE TRADER BPR: (1) BUSINESS PROPERTY: the business must constitute 'business property' — an interest in a business carried on for gain. A sole trader business qualifies as an interest in the business. (2) 2-YEAR OWNERSHIP RULE (s106 IHTA): the owner must have owned the business continuously for at least 2 years before the death. A newly established sole trader business does not qualify until 2 years of trading. (3) TRADING TEST (s105(3) IHTA): the business must be wholly or mainly trading — not an investment business. A freelancer or tradesperson (plumber, architect, consultant, IT contractor) qualifies. A sole trader who mainly holds investment property does NOT qualify — BPR would be denied on the investment element. (4) THE £1M CAP FROM 6 APRIL 2026 (FINANCE ACT 2025/26): BPR is now capped at £1m of 100% relief per person (combined with APR). Business assets above £1m receive 50% BPR — effective IHT rate of 20% on the excess. For most sole traders, the total business value (goodwill, equipment, IP, debtors net of creditors) is below £1m — the cap does not affect them. High-value professional practices (law firms, accountancy practices, technology businesses) may exceed the cap. (5) EXCEPTED ASSETS (s112 IHTA): assets held in the business but not used for business purposes — large cash reserves not needed for the business, investment property, excessive personal assets — are 'excepted assets' and do NOT qualify for BPR. | EXAMPLE — SOLE TRADER BPR CALCULATION: Michelle runs a successful IT consultancy as a sole trader. On her death, her estate includes: sole trader business goodwill £200k; business equipment £40k; work in progress (debtors) £60k net; personal home £450k; savings £130k; pension (SIPP) £300k (outside estate until April 2027). ESTATE BEFORE BPR: home £450k + savings £130k + business £300k + debtors £60k + equipment £40k = total £980k. IHT CALCULATION WITHOUT BPR: IHT threshold (NRB + RNRB) = £500k (married; RNRB available as home passes to children). Taxable estate: £480k. IHT at 40%: £192,000. BPR ON SOLE TRADER BUSINESS (2 years trading, trading business, below £1m cap): sole trader business interest (goodwill £200k + equipment £40k + net debtors £60k) = £300k. BPR at 100%: £300k exempt. Revised taxable estate: £980k - £300k BPR = £680k - £500k threshold = £180k. IHT at 40%: £72,000 (saving of £120k). PRACTICAL NOTES: Michelle should document that her business qualifies — 2 years trading history, trading not investment, no excepted assets. If Michelle's business value grows above £1m, she should review BPR planning — the £1m combined BPR/APR cap introduced in April 2026 means any excess receives only 50% relief. | BPR PLANNING FOR SOLE TRADERS: (1) DOCUMENT YOUR TRADING ACTIVITY: HMRC will challenge BPR on the business of a sole trader who appears to be mainly investing (property rentals; passive income). Keep clear records showing active trading — client invoices, contracts, business bank account transactions. (2) KEEP THE 2-YEAR CLOCK RUNNING: do not cease trading for more than a temporary period — if a sole trader ceases and restarts, the 2-year clock may restart. (3) REPLACEMENT PROPERTY RULE (s107 IHTA): if qualifying business assets are sold and replaced with other qualifying business assets within 3 years (before or after the sale), BPR continues on the replacement asset — useful where the business type changes. (4) AVOID EXCEPTED ASSETS: if the business holds large cash reserves not needed for day-to-day trading, distribute them as salary or drawings before death rather than leaving them in the business at death. Cash in a business bank account above what is needed for trading purposes is typically an excepted asset — no BPR. (5) REVIEW AFTER APRIL 2026 BPR CAP: sole traders with business values above £1m (goodwill, IP, client lists, work in progress) should review their BPR position. The new 50% rate on assets above £1m means a £2m sole trader business attracts IHT on £500k (the excess above the £1m cap) at 20% = £100k IHT — previously nil. Life insurance in trust may be worth considering to fund the shortfall. (6) BUSINESS SUCCESSION: if BPR is available, consider whether a lifetime gift of the business to a successor is more efficient — a PET (potentially exempt transfer) of a BPR-qualifying business to a successor, surviving 7 years, is free of IHT. If the donor dies within 7 years but the successor still owns the business, BPR may still apply on the gift (the replacement property rules and the transferee's own 2-year clock are relevant). |
| LPA for business — why self-employed people need this urgently | LPA FOR PROPERTY AND FINANCIAL AFFAIRS — WHY SELF-EMPLOYED PEOPLE CANNOT WAIT: a Lasting Power of Attorney for property and financial affairs allows a named attorney to manage all financial and property matters if the donor loses mental capacity. For a self-employed person, this is not just about personal finances — it covers the business too. NO SEPARATE BUSINESS LPA: there is no separate 'business LPA' — the property and financial affairs LPA covers both personal and business assets. A sole trader's business bank accounts, client invoices, supplier payments, payroll, and HMRC obligations are all covered by the property and financial affairs LPA. WITHOUT AN LPA — BUSINESS CRISIS: if a sole trader loses capacity (stroke, accident, serious illness) without a registered LPA: (a) all bank accounts are frozen — the attorney cannot pay suppliers, staff, or HMRC; (b) the business cannot function — clients may cancel contracts; (c) the only remedy is an application to the Court of Protection for a deputyship — taking 6-12 months and costing £3,000-£10,000+ in fees; (d) by the time a deputy is appointed, the business may have collapsed. LPA REGISTRATION — TIMING: the LPA must be registered with the OPG before it can be used. Registration takes up to 20 weeks (2026). IMPORTANT: you must have capacity to sign the LPA. If you have already lost capacity, you cannot sign an LPA — the only option is Court of Protection. Register your LPA now, while you are well. BUSINESS BANK ACCOUNT — NOTIFY YOUR BANK: once the LPA is registered, notify your business bank and ask them to note the LPA on the account. Some banks require a separate form or meeting to record an LPA on business accounts. | EXAMPLE — SOLE TRADER LOSES CAPACITY WITHOUT AN LPA: James runs a graphic design studio as a sole trader — 12 client retainers, 2 freelance assistants on contracts, and annual turnover of £180k. James suffers a sudden severe stroke at 47 and lacks capacity. His wife Sarah wants to manage his business while he recovers. NO LPA: James did not register an LPA before the stroke. Sarah cannot access any business accounts. She applies to the Court of Protection for a financial deputyship — estimated 9-month wait. During this time: clients are not invoiced (£45k of unpaid invoices go uncollected); supplier contracts go unpaid (credit terms breached); HMRC self-assessment instalment falls due — no payment, late penalty accrues; the 2 freelancers find other work and leave. By the time Sarah is appointed deputy 9 months later, 8 of the 12 client retainers have moved to other designers. Revenue has collapsed. CONTRAST — WITH AN LPA: if James had registered a property and financial affairs LPA naming Sarah as attorney in 2023, Sarah could have accessed all business accounts immediately on James's incapacity (presenting the registered LPA to the bank). She could have continued invoicing, paid suppliers, negotiated with clients, and kept the business viable during James's recovery. LPA COST vs COURT OF PROTECTION COST: LPA registration: £82 (or £0 with fee remission). CoP deputyship: £371 application + £494 grant + £320/yr supervision + solicitor costs = easily £2,000-£5,000+ in year 1. | BUSINESS CONTINUITY PLANNING — BEYOND THE LPA: (1) IDENTIFY A BUSINESS SUCCESSION PERSON: who could run or wind up the business if you are incapacitated or die? Name them in your will and brief them about the business. For complex businesses — a key employee, business partner, or trusted professional (solicitor or accountant) should be identified as business manager/executor. (2) WRITE DOWN CRITICAL BUSINESS INFORMATION: where is the business bank account? Who are the key clients and what are the contract terms? Where is the HMRC login / self-assessment reference? What are the outstanding debts and who are the suppliers? Who are the key employees and what are their contracts? Compile a 'business continuity document' and keep it with your will and LPA — accessible to your attorney and executor. (3) CROSS-TRAINING: if you work with an assistant or employee, cross-train them on critical tasks so the business does not depend solely on your personal knowledge. (4) TRANSITION PLAN FOR CLIENTS: some professional clients (e.g. retained legal, accounting, or IT clients) will need to know there is a plan for continuity. Consider mentioning a designated substitute or wind-down protocol in client contracts. (5) PROFESSIONAL INDEMNITY AND BUSINESS INSURANCE: ensure your professional indemnity insurance, public liability, and business interruption insurance are current and transferable — review whether your insurer would cover claims arising during a period of incapacity or after death during the wind-up period. (6) HMRC SELF-ASSESSMENT ON DEATH: the executor is responsible for notifying HMRC of the death and filing final self-assessment returns. The self-assessment liability for income up to the date of death is a debt of the estate. Ensure the executor knows your HMRC reference and the location of past tax returns. |
| Pensions, life insurance, and income protection for the self-employed | PENSION PLANNING FOR SELF-EMPLOYED PEOPLE: self-employed people are not auto-enrolled in a workplace pension — they must arrange their own pension. The most common vehicle is a SIPP (Self-Invested Personal Pension) or personal pension. PENSION AS AN ESTATE PLANNING TOOL (TO APRIL 2027): DC pension funds (including SIPPs) are currently outside the estate for IHT — funds remaining in the pension on death are not counted in the estate, and can be nominated to beneficiaries. From 6 April 2027 (Finance Act 2024), unused DC pension funds enter the IHT net — the spousal exemption still applies (pension funds nominated to a UK-domiciled spouse remain exempt). Self-employed people with large SIPPs should review their nomination forms and consider the tax-efficient draw-down/gifting strategy before April 2027. LIFE INSURANCE FOR SELF-EMPLOYED PEOPLE: self-employed people have no employer death-in-service scheme (typically 3-4x salary). They must arrange their own life insurance. KEY PRODUCTS: (a) TERM LIFE INSURANCE: pays a lump sum on death within a fixed term. Should be written in trust to avoid forming part of the estate (otherwise: IHT at 40% on the proceeds). (b) WHOLE OF LIFE INSURANCE: covers life without a fixed term — premiums higher but guarantees a payout. Used for IHT liability funding (ensuring funds are available to pay IHT on death). (c) RELEVANT LIFE PLAN: if the self-employed person also operates through a limited company, a relevant life plan is a company-funded life policy written in trust — premiums are a business expense deductible for corporation tax purposes; the payout is not part of the estate. (d) INCOME PROTECTION INSURANCE: pays a proportion of income (typically 60-70% of pre-disability earnings) if the self-employed person is unable to work through illness or injury. No employer sick pay means income stops immediately on incapacity — income protection is critical. (e) CRITICAL ILLNESS COVER: pays a lump sum on diagnosis of specified serious illnesses (cancer, heart attack, stroke) — useful for a self-employed person needing capital to adapt the business or pay off a mortgage on incapacity. | EXAMPLE — COMPREHENSIVE SELF-EMPLOYED ESTATE PLAN: Kate runs a successful consultancy as a sole trader — income £95k/yr. She has a house (£500k, mortgage £150k), SIPP (£280k), and business goodwill (£120k). She has two children (ages 15 and 18) and is not married. PROBLEMS WITHOUT PLANNING: (a) No will → intestacy → estate to children equally — but no one can access the estate or run the business pending letters of administration (6+ months). (b) No LPA → business bank accounts frozen immediately on incapacity. (c) No life insurance → children inherit the estate (net of mortgage) but no additional cash for their support during administration. (d) SIPP nomination not updated → from April 2027, the SIPP enters the estate unless properly nominated. KATE'S ESTATE PLAN: (1) Will: leaving house equally to children (using trust for the 15-year-old until age 18); business to be wound up by executor within 12 months; SIPP is nominated to the children (updated before April 2027). (2) Property and financial affairs LPA: Kate's sister Sophie named as attorney — can operate the business bank accounts immediately on Kate's incapacity. (3) Term life insurance £500k written in trust: pays out to children's trust; no estate inclusion. (4) Income protection: 70% of Kate's income (£66.5k/yr) payable after 3 months of incapacity, to age 60. (5) BPR: business goodwill £120k qualifies for 100% BPR — reduces IHT liability on the estate. TOTAL IHT POSITION: estate £500k (house) + £120k (business) - £300k (NRB + no RNRB as she is unmarried, single parent) = £320k taxable. BPR: £120k exempt. Taxable: £200k. IHT: £80k. Funded by a whole-of-life policy: £80k written in trust. | ESTATE PLANNING PRIORITIES FOR THE SELF-EMPLOYED — ACTION LIST: (1) MAKE A WILL NOW: specifically addressing business assets, the wind-up or continuation of the business, who is responsible, and timescales. If you have children, appoint guardians. (2) REGISTER AN LPA FOR PROPERTY AND FINANCIAL AFFAIRS IMMEDIATELY: do not wait — registration takes up to 20 weeks. Name someone who understands your business sufficiently to manage it during incapacity. (3) UPDATE PENSION NOMINATIONS: review your SIPP or personal pension nomination form — is it current? Does it name the right beneficiaries? With the April 2027 IHT change, ensure nominations go to beneficiaries who will benefit most from the current IHT exemption and plan for what happens after April 2027. (4) LIFE INSURANCE IN TRUST: do not leave life insurance unwritten — if paid directly to your estate, it faces IHT. Write the policy in trust, naming your children or other beneficiaries as the trust beneficiaries. The payout bypasses the estate. (5) INCOME PROTECTION: this is not an estate planning tool — it is a business continuity and personal income tool. Without it, serious illness means income stops immediately. Most self-employed people are underinsured for incapacity risk. (6) BPR REVIEW: ensure your business activities clearly qualify as trading (not investment). Document your trading history. Avoid accumulating excessive cash reserves in the business. Review whether the £1m BPR cap (from April 2026) affects your position. (7) ACCOUNTS AND TAX RECORDS: ensure your executor knows where your self-assessment records, HMRC login, and accountant's contact details are. The executor is responsible for final self-assessment and any capital gains on business asset disposals during wind-up. |
Estate planning for the self-employed UK 2026. Legal framework: IHTA 1984 ss103-114 (Business Property Relief); IHTA 1984 s106 (2-year ownership requirement); IHTA 1984 s105(3) (wholly or mainly trading test); IHTA 1984 s112 (excepted assets); Finance Act 2025/26 (BPR/APR £1m cap from April 2026); Finance Act 2024 (pensions and IHT from April 2027); Mental Capacity Act 2005 (LPA); Wills Act 1837 (will requirements); Administration of Estates Act 1925 (executor powers and intestacy); Employment Rights Act 1996 (employee rights on employer's death); Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) (sole trader taxation). KEY POINTS: (1) SOLE TRADER = PERSONAL LIABILITY: a sole trader has no separate legal identity — all business assets, liabilities, and obligations are personal. Unlike a limited company, there is no entity continuity on death. The executor inherits both the assets and the liabilities. (2) EXECUTOR POWERS TO CONTINUE BUSINESS: under s39 Administration of Estates Act 1925, the personal representative may carry on a business for the purpose of administration — but this is not the same as trading for profit. The executor can continue trading temporarily to wind up orderly (protect goodwill, honour immediate obligations) but not as a business continuation in the long term without specific authority in the will. (3) BPR — SOLE TRADER vs COMPANY: BPR at 100% is available on: s105(1)(a): an interest in a sole trader business; s105(1)(b): a partnership interest; s105(1)(bb): unquoted shares in a trading company. Quoted shares generally get 50% BPR (s105(1)(c)). AIM shares are treated as unquoted — 100% BPR (now capped at £1m combined). (4) BPR — 2-YEAR RULE AND CONTINUITY: the 2-year clock restarts if the business is sold and a replacement business is purchased OUTSIDE 3 years (replacement property rule s107 IHTA). Within 3 years: BPR continues on replacement property. Starting a new business after closing an old one = new 2-year clock. (5) SIPP AND ESTATE PLANNING (TO APRIL 2027): DC pension funds (including SIPPs) do not form part of the estate for IHT purposes under current law — they are expression of wishes nominations, not testamentary dispositions. The pension trustee exercises discretion. From 6 April 2027: DC pensions are in scope for IHT — but the spousal exemption (s18 IHTA) applies to nominations to a UK-domiciled surviving spouse. Non-spouse nominations: the pension fund is added to the estate and taxed at 40% (or 36% with a 10%+ charity legacy). The income tax and IHT combined rate on non-spouse pension death benefits could reach 62-67% in high-rate tax situations. (6) INCOME PROTECTION — SELF-EMPLOYED: the Association of British Insurers (ABI) reports that approximately 1 in 4 people will be unable to work for 2 months or more at some point in their career due to illness or injury. For self-employed people with no sick pay: this is a critical gap. Policies should provide cover to the typical retirement age (60 or 65) and should be indexed to inflation. Benefit period: until retirement or recovery (not just 2 years). (7) HMRC ON DEATH OF SELF-EMPLOYED PERSON: the executor must: (a) notify HMRC of the death (inform HMRC using the 'Tell Us Once' service); (b) file a final self-assessment return covering the period from 6 April of the tax year to the date of death; (c) account for any trading income, profits, and capital gains arising during the administration period; (d) close the self-assessment record once administration is complete. Class 2 and Class 4 NICs are pro-rated to the date of death. Outstanding self-assessment liability is a debt of the estate payable before distribution. (8) RELEVANT LIFE PLAN (COMPANY DIRECTORS): where the self-employed person also operates through a personal service company (PSC) or other limited company, a relevant life plan (company-funded policy) is a corporation-tax-efficient alternative to personal life insurance. The company pays the premiums (deductible against corporation tax at 19-25%); the policy is written in a discretionary trust (the payout does not form part of the director's estate); beneficiaries are the director's family. Cover: up to 25x earnings (regulated by the insurer) tax-free to the trust. No employer NIC on premiums (unlike group life schemes). Widely used by owner-manager company directors and contractors.
Frequently Asked Questions
What happens to a sole trader business when the owner dies?
A sole trader business has no legal existence separate from its owner — when the owner dies, the business legally ceases. The appointed executor (or administrator if there is no will) takes control of the business and is responsible for winding it up. All business bank accounts are frozen alongside personal accounts until a grant of probate is obtained — which typically takes 4-6 months. During this time, clients cannot be invoiced, suppliers cannot be paid, and employees cannot receive wages from the business accounts (though the executor has obligations to pay outstanding wages and redundancy as debts of the estate). Client contracts that are personal service contracts typically terminate on the owner's death. The goodwill and IP of the business form part of the estate and may be saleable — but the value often evaporates quickly if the business depends on the owner's personal relationships or skills. Careful estate planning — a business-specific will, an LPA for immediate business management, and a business continuity plan — is essential for sole traders.
Does a sole trader business qualify for Business Property Relief (BPR)?
Yes — a sole trader's interest in their business can qualify for 100% Business Property Relief (BPR) under s105(1)(a) IHTA 1984, reducing the IHT value of the business to nil (or 50% on the excess over £1m from April 2026). To qualify: (1) the business must have been owned for at least 2 years before death; (2) it must be a trading business (not mainly investment — so a landlord with rental properties does not qualify, but an IT consultant, tradesperson, or professional does); (3) 'excepted assets' (cash and assets not needed for the business) do not qualify for BPR and must be excluded. From 6 April 2026, BPR and APR are capped at a combined £1 million of 100% relief per person — assets above £1m receive 50% relief. For most sole traders, the total business value is below £1m and the cap does not affect them.
Do I need an LPA if I am self-employed?
Yes — a Lasting Power of Attorney (LPA) for property and financial affairs is particularly important for self-employed people. If you lose mental capacity (through stroke, accident, or serious illness) without a registered LPA, your business bank accounts are frozen and no one can legally manage your business finances until the Court of Protection appoints a deputy — a process taking 6-12 months and costing £3,000-£10,000+. During that time, clients may cancel contracts, suppliers go unpaid, staff leave, and HMRC penalties accrue. A registered LPA allows your named attorney to access business accounts and manage business finances immediately on your incapacity. The LPA must be registered with the OPG (cost: £82; takes up to 20 weeks) before it can be used — register it now, while you have capacity.
What life insurance should self-employed people have for estate planning?
Self-employed people do not have an employer's death-in-service scheme and must arrange their own life cover. Key options: (1) Term life insurance — pays a lump sum if you die within a fixed term; suitable for covering a mortgage, funding children's support, or replacing income for dependants. Always write the policy in trust so the payout does not form part of your estate (avoiding IHT on the proceeds). (2) Whole of life insurance — pays out whenever you die, at any age. Used primarily to fund IHT liabilities — ensuring cash is available to pay the IHT bill without selling assets. (3) If you operate through a limited company: a relevant life plan — the company funds the premium (corporation tax-deductible); the payout goes to a trust for your beneficiaries and is not part of your estate. (4) Income protection insurance — not estate planning, but critical: pays 60-70% of your income if you cannot work through illness or injury. Without employer sick pay, your income stops immediately on incapacity — income protection is arguably more important for self-employed people than it is for employees.
How should self-employed people handle pensions for estate planning?
Self-employed people rely on SIPPs (Self-Invested Personal Pensions) or personal pensions — there is no employer auto-enrolment. For IHT planning: DC pension funds are currently outside the estate (until 6 April 2027) and can be nominated to any beneficiary. Review your nomination form annually and ensure it names the right beneficiaries. From April 2027, unused DC pension funds become subject to IHT — the spousal exemption still applies (funds nominated to a UK-domiciled surviving spouse remain exempt). Self-employed people with large SIPPs should review their draw-down strategy and nomination arrangements before April 2027. Consider whether it is more tax-efficient to draw down from the pension and gift the proceeds (as PETs or within annual exemptions) before the April 2027 change, rather than leaving large pension pots to be IHT-taxed from 2027.
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