Paying less tax is usually a good thing. But not if the saving leaves you with less control over your money, less liquidity or fewer options later.
For founders and business owners, it is natural to want to structure things as tax efficiently as possible. Often that is exactly what we should be doing.
The problem comes when tax becomes the main reason for making the decision.
Tax rules change. Governments change. Businesses get sold. Family circumstances change. And some tax planning is much easier to put in place than it is to undo.
Sometimes it is worth paying a little more tax to keep more control and flexibility.
Planning around today's rules
One of the difficulties with tax planning is that we are making long-term decisions using rules that can change quite quickly.
What looks sensible today may look very different in five or ten years.
That matters particularly where the planning is difficult to reverse.
You might own your trading premises through a pension. You may have transferred assets into trust. Part of the proceeds from selling your business could be tied up in loan notes or an earn-out.
None of these things are necessarily wrong. But each one comes with restrictions.
So the question should not just be: how much tax does this save?
It should also be: what am I giving up to get that saving?
Pensions and IHT: when your pension owns the factory
From 6 April 2027, most unused pension funds and pension death benefits will be included within an individual's estate for Inheritance Tax purposes.
This creates a particular issue for some business owners who have used a SSAS or SIPP to buy their trading premises.
Historically, that could make a lot of sense. The pension owns the property, the business pays rent to the pension and the asset grows within a tax-efficient environment.
But the IHT changes alter the calculation.
Take somebody with £1 million of value in a SSAS, largely represented by the factory their business operates from.
From April 2027, that pension value could form part of their estate for IHT. If the estate is already above the available allowances, that could potentially create up to £400,000 of additional IHT.
The problem is that a £1 million factory is not £1 million of cash.
HMRC has also indicated that the IHT relating to this type of pension property will not qualify for the normal option of paying the tax by instalments over ten years.
So the tax may need paying while the pension itself holds an illiquid property which the family business still needs to use.
That does not mean somebody should automatically sell the property or dismantle the pension.
It means the planning needs looking at again.
How much IHT could actually be due? Where would the money come from? Should the pension gradually become more liquid? Should some of the pension be used during retirement rather than preserved? Would life cover help?
The pension may still be exactly the right place for the property. But the reasons for holding it there have changed.
Selling your business: the headline price is not everything
When somebody sells a business, most of the attention naturally goes on the price.
But £10 million is not always £10 million.
How you are paid, when you are paid and what needs to happen before you receive the money can make a big difference to the outcome.
An all-cash deal is relatively straightforward. You know what you are getting, when you are getting it and what the tax position is likely to be.
Loan notes are different. They may allow tax to be deferred in some circumstances, but the treatment depends on exactly how the deal and the notes are structured. Interest will normally be taxable as income and the interaction with Business Asset Disposal Relief also needs to be considered.
Earn-outs add another risk.
A proportion of the price may depend on the business hitting future targets. If you are also staying with the business, the agreement needs to be drafted carefully so that the earn-out is genuinely part of the sale price and not, in substance, payment for your continued employment.
So if somebody offers you £8 million in cash or £10 million with £4 million dependent on the business performing over the next three years, those are not simply two different prices.
I would want to know what you are likely to keep after tax, when you actually receive it and what could stop you receiving it.
Sometimes the lower offer is the better deal.
Offshore trusts: the residence rules have changed
The IHT rules for internationally mobile families changed significantly from 6 April 2025.
The old domicile-based system has been replaced by a long-term UK residence test.
Broadly, somebody who has been UK resident for at least 10 of the previous 20 tax years can now have their overseas assets brought within the UK IHT regime.
This is particularly important for offshore trusts.
UK assets were already potentially within the UK IHT net. The important change is what can now happen to foreign assets held within an offshore trust.
For many trusts, whether those foreign assets are outside UK IHT can now depend on the long-term residence position of the settlor.
That can affect ten-year anniversary charges and charges when money or assets leave the trust.
For somebody who has lived in the UK for a long time but established an offshore trust years ago, that is a major change.
The trust may still be the right structure. But it should not simply be left alone because the planning worked when it was established.
You need to understand what the trust owns, where the assets are situated, the settlor's residence history and what future tax charges could arise.
Then you can decide whether anything actually needs to change.
Acting before the rules are settled
The recent changes to Business Relief and Agricultural Relief are a good example of why acting too quickly can cause problems.
At the Autumn Budget in 2024, the Government announced plans to restrict 100% relief to the first £1 million of qualifying agricultural and business assets.
Understandably, some business owners and farmers considered accelerating gifts or transferring assets into trust before the new rules took effect.
The position then changed.
From 6 April 2026, the 100% relief allowance is £2.5 million rather than £1 million. Unused allowance can also transfer between spouses and civil partners, potentially giving a surviving spouse up to £5 million of 100% relief.
That is a very different position from the one originally announced.
Anyone who carried out irreversible planning based purely on the first announcement could therefore find they acted earlier than they needed to.
That does not mean the planning was necessarily wrong. There may have been other good reasons for doing it.
But if a decision is difficult to reverse, I would be very cautious about making it purely in response to a Budget announcement.
Sometimes waiting for the legislation to settle is the better form of tax planning.
Surplus cash in your company
Another area that catches business owners out is cash building up inside a trading company.
It is easy to assume that if the company qualifies for Business Relief, everything inside it qualifies as well.
That is not always the case.
HMRC can treat assets as 'excepted assets' where they have not been used mainly for the business and are not genuinely required for future business use.
Cash is an obvious area of concern.
There is no fixed amount of cash a company is allowed to hold. The question is what the money is actually there for.
Cash needed for working capital, an acquisition, new premises or a genuine future business requirement is very different from cash that has simply accumulated for years because the shareholders have never taken it out.
And simply moving spare cash into an investment portfolio does not automatically solve the problem.
If investment activity becomes too significant, you can create a separate issue over whether the company itself is mainly carrying on a trading business rather than making or holding investments.
The answer therefore depends on the company.
It might make sense to reinvest the money into the business. It might make sense to extract some of it. There may be a genuine reason for retaining it which should be properly documented. Life cover may also form part of the wider IHT planning.
The main point is to identify the issue while you still have choices.
Finding out after somebody has died is too late.
Employee Ownership Trusts: the numbers have changed
Employee Ownership Trusts are another example of why a business sale should not be driven by tax alone.
Before 26 November 2025, a qualifying sale to an EOT could benefit from full CGT relief.
That has now changed.
For qualifying disposals from 26 November 2025, 50% of the gain is chargeable to CGT, with the other 50% held over.
For somebody selling a business for several million pounds, that is a significant change to the numbers.
But it does not mean EOTs no longer work.
There can still be good reasons for choosing one. You may want to protect the culture of the business, provide continuity for employees or step away over time rather than sell to a competitor or private equity buyer.
The question is simply whether an EOT is still the best way to sell the business once tax is considered alongside everything else.
Tax is part of the decision
There is nothing wrong with wanting to pay less tax.
If there is a sensible and legitimate way of reducing a tax bill, we should be considering it.
But I would not give up control, liquidity or flexibility purely to get the lowest possible tax bill today.
Sometimes the most tax-efficient option will also be the best option.
Sometimes paying some tax and keeping access to your money will leave you in a stronger position.
And sometimes the best decision is to do nothing yet.
Good planning cannot predict every change to tax legislation, your business or your family circumstances.
But it can make sure you still have choices when things change.
