Wills for Business Owners UK (2026): What Every Director, Partner & Sole Trader Needs

A sole trader's business has no legal existence separate from the person who runs it. When a sole trader dies: (1) Business assets form part of the estate: all business assets — stock, equipment, tools, intellectual property, business bank account, website, client lists, goodwill — automatically become part of the deceased's estate. There is no separate business entity that can carry on; (2) Business bank account frozen: the sole trader's business bank account is their personal current account. It is frozen on notification of the bank, exactly like any personal account. Payroll, supplier payments, direct debits, and other transactions all stop; (3) Difficulty continuing the business: the executor can in principle continue the trading activities of the estate during administration (AEA 1925 s.39) but: (a) they have no formal authority to enter contracts on behalf of the business; (b) clients, suppliers, and employees are not bound to deal with the estate; (c) professional registrations, licences, and insurance do not automatically transfer; (d) PAYE obligations continue regardless; (4) Employees: employees' employment contracts technically end when the employer (the sole trader) dies. In practice, the executor may keep them employed during administration but they should take specialist employment law advice. Unpaid wages and notice pay are priority estate debts; (5) Business Property Relief: sole traders may qualify for 100% BPR on the business assets under IHTA 1984 s.104 if: (a) the business was wholly or mainly trading (not investment); (b) held for at least 2 years before death. BPR reduces the IHT value to nil on qualifying assets — a significant benefit; (6) Passing the business in a will: a specific legacy of the business assets in the will ('I give my business known as [name] to X') is possible but complex. If the intended recipient cannot run the business (through lack of skill, capital, or regulatory requirements), the legacy fails in practical terms. A conditional legacy ('only if X obtains [licence/qualification] within 12 months') may be better in regulated trades.

The consequences of a partner's death depend almost entirely on the terms of the partnership agreement — not default law: (1) Default rule under the Partnership Act 1890 s.33: if there is no partnership agreement (or the agreement is silent on death), a partnership is automatically dissolved on the death of any partner. This means the partnership must be wound up — assets sold and debts paid — which can destroy a viable business. The surviving partners have no right to continue; (2) Partnership agreement provisions to look for: almost all well-drafted partnership agreements will include: (a) a continuation clause: the remaining partners can continue the business after one partner dies without dissolution; (b) a buy-out clause: the surviving partners (or the partnership) can purchase the deceased's share at an agreed price within a set period; (c) a valuation mechanism: how the deceased's share is valued (accounts-based; independent surveyor; agreed formula); (d) life insurance: some agreements require partners to hold life policies to fund the buy-out; (3) What happens to the deceased partner's share: under a buy-out clause, the deceased's estate receives the agreed price for the share — this becomes part of the estate for IHT and distribution purposes. Without a buy-out clause, the estate is entitled to a share of the wound-up partnership assets (or an account of profits); (4) BPR on partnership shares: a partner's interest in a trading partnership typically qualifies for 100% BPR under IHTA 1984 s.105(1)(a). However, if the partnership holds significant investment assets (e.g., a property investment partnership), BPR may be restricted; (5) What to include in a will: (a) direct the executor to co-operate with any partnership agreement buy-out obligations; (b) name who should hold and manage the partnership share during administration; (c) consider whether the partnership share should pass to a specific beneficiary who has the skill and authority to be admitted as a partner (admission of new partners requires all existing partners' consent under most partnership agreements).

Shares in a private limited company are personal property — they pass in the same way as any other asset, through the will or intestacy rules: (1) Shares pass under the will or intestacy: if the deceased director left a will with a specific gift of the shares, the executor assents (transfers) them to the named beneficiary. If no specific gift, the shares fall into the residuary estate and pass to the residuary beneficiary. If no will, the shares pass under the intestacy rules; (2) The company continues: unlike a sole tradership, the company has its own legal personality and continues to exist after a director's death. The remaining directors continue to operate the business; (3) Executor's rights as shareholder: once the Grant of Probate is obtained, the executor is entitled to be registered as the shareholder in place of the deceased — to receive dividends, exercise voting rights, and receive notice of meetings. The executor does not automatically have voting rights until registered (or until they produce the Grant to the company); (4) Articles of Association and shareholders' agreement: the company's Articles and any shareholders' agreement may contain restrictions on share transfers: (a) pre-emption rights: on the death of a shareholder, the remaining shareholders may have a right of first refusal to buy the deceased's shares at a set price before they can be transferred to a third party; (b) drag-along and tag-along rights: relevant in multi-shareholder companies; (c) restrictions on who can hold shares: some private company articles restrict membership to specific individuals (family members; employees); (5) Appointing new directors: only the board of directors (or a general meeting) can appoint a new director — the executor cannot become a director simply by inheriting shares. If the deceased was a sole director, the executor can call a general meeting (as the registered shareholder) to appoint new directors; (6) Leaving shares to a minor: leaving company shares to a minor is problematic — most articles prevent minors from being registered as shareholders. Use a bare trust or a trustee to hold the shares until the child reaches 18.

A shareholders' agreement and a double option (cross-option) agreement are the two most important business succession documents for limited company owners: (1) Shareholders' agreement: a private contract between the shareholders that governs how the company operates between them. For business succession, the key provisions are: (a) pre-emption on death: the deceased's shares must first be offered to the surviving shareholders at a formula price before they can pass to the deceased's family; (b) drag-along on winding up: if a majority decide to sell the company, minority shareholders must sell too; (c) valuation mechanism: how shares are valued on death or transfer — usually based on net asset value or an independent accountant's determination; (d) director removal: provisions for removing a director who is incapacitated or deceased; (e) business LPA: some shareholders' agreements require all directors to hold a registered Property and Financial Affairs LPA to cover incapacity as well as death; (2) Double option agreement (cross-option agreement): a separate agreement specifically designed to work alongside life insurance to fund a share buy-out on death: (a) each business owner takes out a life insurance policy on their own life written in trust for the benefit of the other owners; (b) on death, the deceased's estate has an option to SELL the shares to the surviving owners; (c) the surviving owners have an option to BUY the shares from the estate; (d) both options have the same price (usually the pre-agreed valuation); (e) the life insurance payout (held in trust for the survivors) funds the purchase; (3) Why the double option structure matters for BPR: if the buy-out is contractually binding (not optional), the deceased's shares may lose their BPR status because a binding obligation to sell means they are no longer 'relevant business property'. The double option structure — two separate OPTIONS rather than one binding obligation — preserves BPR by keeping the sale technically voluntary. This is a crucial piece of IHT planning; (4) Business LPA: register a Property and Financial Affairs LPA to give an attorney the ability to manage the business if you become incapacitated before death. Without it, the company's bank account may be frozen and no one has authority to operate the business.

Business Property Relief (BPR) is one of the most valuable IHT reliefs available to business owners — it can eliminate IHT entirely on qualifying business assets: (1) What BPR covers: BPR applies to: (a) shares in an unquoted trading company (100% relief under IHTA 1984 s.105(1)(bb)) — includes AIM shares; (b) a sole trader's business or an interest in a trading partnership (100% relief); (c) a controlling shareholding in a quoted company (50% relief — much rarer); (d) business assets owned personally but used in a business owned by the deceased or a company controlled by the deceased (50% relief); (2) Key qualifying conditions: (a) the business must be a 'relevant business': wholly or mainly trading (HMRC treats this as more than 50% of activities being trading — not investment); (b) the asset must have been owned for at least 2 years before death (the '2-year rule'); (c) the asset must not be 'excepted' from BPR (excepted assets are those not used in the business — cash holdings above working capital requirements; investments; residential property portfolio); (3) The 50% trading test: HMRC applies a multi-factor test — not just turnover — to determine whether a business is 'wholly or mainly trading': (a) it considers turnover, assets, and management time attributable to trading vs investment activities; (b) a company that has significant investment property or cash reserves above working capital may fail the test; (c) HMRC scrutinises BPR claims particularly for companies with large investment portfolios alongside a trading business; (4) Excepted assets: within an otherwise qualifying company, assets that are not used in the business are 'excepted assets' and their value does not attract BPR. This includes: excess cash; investment properties; shares in other companies not part of the business; (5) Pension changes from April 2027: from April 2027, unused pension funds will be included in the estate for IHT. Business owners who hold pension assets alongside BPR-qualifying shares should review whether their overall estate remains within the NRB + RNRB after April 2027. See `pension-inheritance-tax-2027-uk` for details.