Recent scrutiny of Inheritance Tax (IHT) reforms has highlighted an issue that many business owners overlook, namely the impact that the death of a key director or founder can have on a company’s valuation.

Where a business is heavily reliant on a key individual, their absence may affect revenue stability, supplier relationships, customer confidence and future earnings.

These factors can influence how the business is valued at the date of death, which in turn affects the IHT position of the estate.

This issue is becoming more significant as reforms to Business Property Relief (BPR) from April 2026 will reduce IHT protection for many business owners.

From this date, business assets will fall within the IHT regime, with only the first £2.5 million qualifying for 100 per cent relief. Any value above this will be taxed at an effective rate of 20 per cent.

The Government has confirmed that BPR allowance will be transferable between spouses and civil partners.

These new regulations will mean that IHT is now payable in circumstances in which it would previously not have been.  However, the amount of IHT can be reduced if it can be argued that the death of the business-owner had an adverse effect on its value.

Although IHT on business assets will be payable over 10 years in equal, interest-free instalments, which should help reduce the need for immediate asset liquidation, some families may still experience cashflow pressures if they do not have the funds to settle the liability.

Estates may now be required to obtain more detailed and defensible valuations, often under tight statutory deadlines, at a time when the business itself may be experiencing disruption or uncertainty.

From a forensic perspective, valuations following the death of a director often require careful examination of financial performance before and after the event.

This can include assessing the extent of the individual’s influence on profitability, identifying dependency on specific individuals and reviewing whether the evidence supports changes in value.

Roger Isaacs, Forensics Partner at Milsted Langdon, comments:

“Where a company’s success is closely tied to one person’s leadership, relationships or technical knowledge, that dependency can have a significant impact on the value of an organisation if that individual is no longer around.

“For instance, if one individual has a strong rapport with a key client who is responsible for a large portion of the company’s revenue, and that person dies, or even just leaves the company, there’s a very real possibility that they could lose that client’s business and, therefore, see a significant drop in revenue, which in turn would directly affect the company’s valuation.

“Business valuations are particularly important in circumstances in which there is a risk of a dispute between the deceased’s beneficiaries. 

“Even if the beneficiaries are in accord, a robust business valuation can help to save many thousands of pounds in IHT.”