Succession in a Family Business: Planning the Handover

Margaret’s father opened the bakery in Leicester in 1979, and she has run it for twenty-five years. At 64 she wanted to slow down, and everyone assumed her son Daniel, who already ran the ovens, would take over. Nobody had asked her daughter Sophie, a nurse, how she felt about that, and nobody had looked at the tax rules that changed in April 2026. Family business succession rarely fails because of one big mistake. It fails because the hard conversations get put off until an illness or a crisis forces them.

Question to settle	Why it matters
Who wants to run it, and who is ready?	Willing and able are not the same thing
Who will own it?	Ownership and management can be split
What will the tax be?	100% Business Relief now capped at £2.5m per person
What is written down?	Will, shareholders’ agreement, power of attorney
What does the founder live on?	Retirement income must not drain the business

Why the handover matters so much

Family firms are not a niche. The Family Business Research Foundation estimates there were just over 5 million family businesses in the UK in 2023, making up 93% of private-sector firms and employing around 15.8 million people. Most are small: a garage, a farm shop, a building firm, a bakery. In each one, the handover is the moment of greatest risk. Customers, staff and suppliers are loyal to a person, and when that person steps back without a plan, the goodwill can drain away quickly. A succession plan is really a plan to keep the business worth handing over, and it belongs alongside the other big risks covered in our guide to managing business risk.

Start with who actually wants it

The most common mistake is assuming. Parents assume a child wants the business; children assume they are expected to take it, and say yes out of loyalty. Ask each person separately and give them room to say no. When Margaret finally asked, Daniel said yes straight away. Sophie said she had never wanted to run it, but she did not want to be written out of the family’s biggest asset either. That was the first honest conversation they had ever had about it, and it changed the whole plan. If nobody in the family wants the job, that is a perfectly good answer. It simply points you towards a different route, such as selling or bringing in outside management.

Willing is not the same as ready

Daniel knew the ovens inside out, but he had never priced a wholesale contract, dealt with the bank or managed a difficult member of staff. Readiness takes years, not weeks. Give the successor real responsibility for a part of the business, including the right to make mistakes, and step back from it properly. Encourage time outside the family firm if possible, because experience elsewhere earns respect from staff. Teach them to read the accounts — our guide to reading company accounts is a good starting point. Margaret handed Daniel the wholesale side first. Within a year he had won two new cafe contracts and lost one, and learned more from the loss than from either win.

Fair is not always equal

This is where families fall out. Splitting the shares 50/50 between a child who works in the business and one who does not can look fair, but it often leads to arguments: one sibling works long hours while the other receives half the profit. Remember that owning and running are different. Some families give the working child the shares and balance things for the other through the house, savings or life insurance. Others give the working child voting shares and the other non-voting shares that still receive dividends. There is no single right answer. What matters is that everyone understands the reasoning while the founder is alive to explain it. Our guide to cap tables and share classes explains how different shares work.

The tax rules changed in April 2026

For years, most shares in a family trading company passed on death free of inheritance tax thanks to 100% Business Relief. From 6 April 2026, full relief is capped at £2.5 million per person, combined with agricultural relief. Above that, relief drops to 50%, which in effect means inheritance tax at 20%. The cap was raised from the originally planned £1 million in December 2025, and unused allowance can pass to a surviving spouse or civil partner, so a couple can shelter up to £5 million. Tax on the excess can often be paid in instalments over ten years. For most small family firms, including Margaret’s, the new cap will never bite. Larger ones should take advice now, because gifts made since 30 October 2024 can be caught too.

Capital gains tax when shares change hands

Inheritance tax is only half the picture. If you give shares away during your lifetime, HMRC treats it as a sale at market value, which could create a capital gains tax bill even though no money changed hands. Gift holdover relief usually solves this for trading businesses: the gain is passed to the person receiving the shares, who pays it only when they eventually sell. If instead you sell shares to a child or a manager, Business Asset Disposal Relief may apply, taxing qualifying gains at 18% from April 2026, up to a lifetime limit of £1 million. Shares passed on at death generally carry no capital gains tax. Which route suits you depends on your age, health and the size of the business, so plan it with a good accountant rather than guessing.

Put everything in writing

Family goodwill is not a legal document. At a minimum you need an up-to-date will that matches the plan, a shareholders’ agreement covering what happens if someone wants to sell, divorces, falls out or dies, and articles of association that fit how the company will really be run. A lasting power of attorney that covers the business matters too; if the founder suddenly loses capacity, nobody else may be able to sign cheques or contracts. Many families also write a short family charter setting out who can work in the business and how disputes are handled. If the business is a partnership rather than a company, our guide to partnership agreements covers the equivalent documents.

Plan your own life after the handover

Many founders forget themselves. What will you live on? If the business has to pay you a large salary, dividends or instalments for your shares, can it afford that and still invest? Build those payments into a realistic cash flow forecast before agreeing anything. Decide what happens to the property too. Margaret owns the bakery building personally, so she now rents it to the company, which gives her a steady income and gives Daniel security. Then agree your own role. Some founders stay on as chair or adviser; others need to leave completely, because staff will keep coming to the old boss while the old boss is still in the building.

Tell people in the right order

Once the plan is agreed, announce it deliberately. Family first, so nobody hears it second-hand. Then senior staff, who may worry about their own position or have hoped for the top job themselves; be honest with them and, where you can, give them a clear future role. Then the rest of the team, key customers, suppliers and the bank. Publish a timetable showing when each responsibility moves across, so everyone knows who to call. Margaret and Daniel visited their five biggest wholesale customers together, which did more to reassure them than any letter could. A period where both generations are visible, followed by a clear final handover date, works better than a long, vague transition.

If nobody takes over

Sometimes the honest answer is that no one in the family should run the business. That is not failure. Options include appointing an outside manager while the family keeps ownership, a management buyout by existing staff, a sale to an employee ownership trust, or a straightforward sale to another business. Each has different tax, timing and funding implications. A sale also needs preparation, often two or three years of it, to get the price right. Our guide to exit planning and selling your business walks through that route step by step. Whatever you choose, get the business valued independently first, so nobody in the family feels the figure was pulled out of thin air.

Four years later

Margaret’s handover took four years. Daniel now owns the voting shares and runs the bakery. Sophie holds non-voting shares that pay a dividend, and will inherit more of the family savings to balance things out. Margaret rents the building to the company and pops in on Fridays, as a customer. Family business succession works best when it starts early, puts feelings on the table before paperwork, and treats tax as a check on the plan rather than the plan itself. If you have not started yet, start with one honest conversation this month.

Frequently asked questions

When should I start planning family business succession?

Ideally five to ten years before you want to step back. At the very least, start three years ahead so the successor has time to learn.

Is a family business still free of inheritance tax?

From 6 April 2026, 100% Business Relief covers qualifying business assets up to £2.5 million per person. Relief drops to 50% above that.

Can my spouse use my unused Business Relief allowance?

Yes. Unused 100% relief allowance can pass to a surviving spouse or civil partner, letting a couple shelter up to £5 million.

Do I pay capital gains tax if I give shares to my children?

A gift counts as a disposal at market value, but gift holdover relief usually lets the gain pass to your children instead.

Should the business be split equally between my children?

Not necessarily. Many families give working children the voting shares and balance things for others with dividends or other assets.

What if none of my children want the business?

Consider an outside manager, a management buyout, an employee ownership trust or a sale to another business. Plan two to three years ahead.

This article is general information about the position in the UK from 6 April 2026, not tax, legal or financial advice. Business Relief, capital gains tax and trust rules are complex and depend on your circumstances. Take professional advice before transferring shares or assets.