Inheriting a Business UK (2026): What Happens When a Business Owner Dies?

A sole trader business has no legal personality separate from its owner — when the owner dies, the business does not survive them as a going concern in its own right: (1) Business assets vest in the executor: under the Administration of Estates Act 1925, all property belonging to the deceased (including business assets — tools, stock, equipment, goodwill, intellectual property, contracts, business bank accounts) vests in the executor or administrator upon death. The executor steps into the deceased's shoes as legal owner of those assets; (2) Business debts become estate debts: all outstanding trade debts owed by the business become debts of the estate. Creditors of the business can claim against the estate like any other unsecured creditor. The estate may be insolvent if business debts exceed personal assets; (3) Can the executor continue trading? An executor has power to continue the business for the purpose of a beneficial winding up under the Trustee Act 1925 s.39 — but only if: (a) the will expressly grants this power, or (b) the court authorises continuation, or (c) it is clearly in the beneficiaries' interests. Without these, the executor must wind up the business and realise the assets as quickly as reasonably possible, not carry on trading at the beneficiaries' risk. A well-drafted will should include an express power to continue the business; (4) Contracts: outstanding contracts may be frustrated by the death (if the contract was personal to the deceased) or may continue to be performed by the executor. Breach of contract through the death gives rise to a damages claim against the estate; (5) Employees: TUPE (Transfer of Undertakings (Protection of Employment) Regulations 2006) applies if the business is sold as a going concern. Employees' contracts automatically transfer to the buyer on the same terms. If the business is wound up (not sold), TUPE does not apply — employees are made redundant and can claim from the estate; (6) IHT and BPR: assets used wholly or mainly in a qualifying sole trader business (a trading business — not an investment business) qualify for 100% Business Property Relief (BPR) under IHTA 1984 s.104 after 2 years. This effectively means no IHT on those business assets. Land/buildings used in the business but held personally may qualify for 50% BPR.

The default position on the death of a partner under the Partnership Act 1890 is dissolution of the partnership — but this can be and almost always should be modified by the partnership agreement: (1) Default position — dissolution (Partnership Act 1890 s.33): under s.33, the death of a partner dissolves the partnership by operation of law (unless the partnership agreement provides otherwise). The surviving partners must wind up the partnership business, realise the assets, pay the partnership's debts, and account to the deceased's estate for their share of the net assets; (2) Partnership agreement alternatives: the vast majority of business partnerships have a written partnership agreement that overrides the default dissolution rule. Common provisions: (a) continuation clause — the business continues under the surviving partners without dissolution; (b) buy-out clause — surviving partners buy out the deceased's share at a pre-agreed valuation method; (c) right of first refusal — survivors have the right to buy the share before it passes to an outsider; (d) life insurance funded buy-out — a cross-option agreement (or double option agreement) funded by life insurance allows the surviving partners to buy the share at full value immediately, without having to find the funds from their own resources; (3) The deceased partner's share: the deceased's share in the partnership (capital account balance + share of profits accrued to date of death + any goodwill element) is an asset of the estate to be valued and either paid out or transferred to beneficiaries in accordance with the partnership agreement; (4) Goodwill: partnership goodwill can be a significant asset. The partnership agreement should address how goodwill is valued and whether the deceased partner's estate is entitled to goodwill. Many professional partnerships (law firms, accountancy practices) by convention have no partnership goodwill — each new partner pays no premium on entry; (5) IHT and BPR: a partner's share in a qualifying trading partnership business qualifies for 100% BPR after 2 years (IHTA 1984 s.105). The land and buildings used in the partnership may qualify for 50% BPR; (6) No partnership agreement: dying without a partnership agreement is extremely risky — default dissolution can destroy a thriving business. Surviving partners have strong incentives to resolve matters quickly and informally, but legal disputes about the deceased's share value are common.

A limited company has separate legal personality — it does not die when its director or shareholder dies. The company continues to exist and trade as normal: (1) The shares become estate assets: the deceased's shares in the company are assets of their estate. The executor has the right (as administrator of the estate) to administer those shares — receiving dividends, voting at general meetings, and eventually transferring the shares to beneficiaries or selling them; (2) The executor is not automatically a member: until the company's shares are formally transferred, the executor holds the shares as personal representative — they can exercise the voting rights attached to the shares (unless the articles restrict this), but they are not themselves a member/shareholder of the company until the shares are registered in their name on a stock transfer form; (3) What happens to the directorship: the directorship ceases automatically on death. The company's articles of association typically provide for this (and the Companies Act 2006 implies it). The surviving directors (if any) continue to manage the company. A sole director/sole shareholder company faces a practical crisis if no successor director has been appointed — who can make company decisions? The executor can vote the deceased's shares (at a general meeting) to appoint a new director; (4) Single-director/shareholder company: the most vulnerable structure. On death: no director to manage; no board meeting possible; bank account may be frozen as the company mandate is linked to the director; employees may not be paid; HMRC obligations (PAYE, VAT, CT600) continue regardless. The executor must act quickly to appoint a new director. This is why every sole director/shareholder should have: (a) an alternate director board resolution; (b) a will with clear executor powers in relation to company shares; (c) a shareholders' agreement or articles provision for death; (5) Transfer of shares to beneficiaries: the executor transfers the shares by stock transfer form to the beneficiary/purchaser. This is registered at Companies House (on the confirmation statement) and in the company's register of members; (6) IHT and BPR: shares in an unquoted (unlisted) trading company qualify for 100% Business Property Relief after 2 years under IHTA 1984 s.105(1)(bb). Shares in investment companies or companies holding mainly investment property do NOT qualify for BPR. AIM-listed shares may qualify for BPR. BPR is one of the most valuable IHT reliefs available — it can eliminate IHT on a significant business shareholding.

Business Property Relief (BPR) is an IHT relief that can reduce the taxable value of qualifying business assets by 100% or 50%, effectively eliminating or reducing IHT on those assets: (1) 100% BPR qualifying assets (IHTA 1984 s.105): (a) a qualifying business or interest in a business (including a sole trader business or partnership share) — the business must be mainly trading, not investment; (b) shares in an unquoted company (including AIM shares not traded on a recognised stock exchange) where the company is mainly trading; (c) shares in an unquoted company where the transferor has voting control; (2) 50% BPR qualifying assets: (a) shares or securities of a quoted company where the transferor has voting control; (b) land, buildings, or plant and machinery owned personally by the deceased and used in a qualifying business carried on as a partner or by a company controlled by the deceased; (3) Two-year minimum holding period: the property must have been owned by the deceased for at least 2 years immediately before death. Newly acquired business assets do not qualify; (4) The 'mainly trading' test: a business or company must be mainly (more than 50%) a trading business to qualify for BPR. A company that holds primarily investment assets (buy-to-let properties, cash, stocks held as investments rather than as trading stock) does not qualify. Mixed trading/investment businesses must pass the mainly trading test; (5) Excepted assets: within a qualifying business, certain 'excepted assets' are excluded from BPR relief — assets that are not being used for the purpose of the business (surplus cash; investments held as investments; property not used in the business); (6) Agricultural Property Relief (APR): separately, farmland and agricultural property qualifies for APR at 70% or 100% under IHTA 1984 s.115; (7) Planning: BPR is one of the most powerful IHT reliefs. However, the Budget 2024 announced changes to BPR effective from April 2026: combined BPR and APR claims above £1 million will be taxed at 20% (not 0%) on the excess. AIM shares, which previously attracted full BPR, will be reduced to 50% BPR from April 2026. Review your BPR planning in light of these changes.

Business owners have estate planning requirements that go significantly beyond a standard will: (1) The will: (a) express power for executors to carry on the business — without this, the executor can only wind up, not trade; (b) specific bequest of the business or shares — naming who receives the business interest; (c) fallback provisions if the primary beneficiary predeceases; (d) executor with business knowledge or experience, or professional executors; (e) trustee charging clause for professional executors; (2) Shareholders/partnership agreement provisions: (a) buy-sell agreement with a cross-option (or double option agreement): each owner takes out life insurance on the other; on death, the survivor has the option (not obligation) to buy the deceased's share; the deceased's estate has the option to require the survivor to buy; the insurance provides the funds. This allows the survivor to buy the share at full value without liquidating the business; (b) clear valuation methodology for the deceased's share — agreed formula (multiple of EBITDA, balance sheet, independent valuation) reduces disputes on death; (c) restriction on shares passing to outsiders — right of pre-emption for surviving shareholders/partners; (3) Articles of association: ensure the company's articles permit the executor to exercise voting rights; provide for how the directorship gap is filled; (4) Life insurance: key man life insurance to provide the company with liquidity on the death of a key individual; shareholder protection insurance for the cross-option buy-out; (5) LPA (Property and Financial Affairs): if you become incapacitated, the LPA attorney can manage your business interests — crucial for sole traders and critical for limited company shareholders (attorney can vote shares to appoint an alternate director). Without an LPA, a Court of Protection Deputyship takes 6–12 months; your business may not survive this period; (6) HMRC obligations: ensure the executor understands ongoing HMRC obligations — PAYE, VAT, corporation tax, self assessment. These continue regardless of the death or incapacity of the owner. Penalties accrue automatically for late filing.