Can we tell a client how much cash the company should keep?

Yes, and you are the right person to do it. Sizing a working capital buffer is accountancy work: a quarter's overheads, the VAT and corporation tax reserves, committed capital expenditure, the headroom a lender requires under a covenant. None of that is a regulated activity, and nobody is better placed to put a number on it than the firm that prepares the accounts. What changes character is the next question. Once the conversation moves from how much the business needs to what the surplus should do — a deposit, an investment, an employer pension contribution — it becomes regulated advice, and it belongs to a firm authorised to give it.

How much cash is too much for business property relief?

There is no statutory figure, which is precisely why the question gets left alone. Section 112 of the Inheritance Tax Act 1984 excludes any asset that was neither used wholly or mainly for the business over the previous two years nor required at the time of transfer for its future use. In Barclays Bank Trust Co Ltd v IRC, decided in 1998, a company held around £450,000 in cash; roughly £150,000 was accepted as required by the business, and the remaining £300,000 was treated as an excepted asset. The test is need and documented future purpose rather than a percentage, so the defence is contemporaneous evidence rather than a ratio.

Does surplus cash put Business Asset Disposal Relief at risk?

It can, because the relief requires the company to be a trading company — one carrying on trading activities without substantial non-trading activities. HMRC's guidance has long read substantial as broadly 20% of the relevant measures, although the Upper Tribunal in Allam v HMRC in 2021 declined to treat that percentage as the governing test. Cash alone rarely fails a company on its own, but cash sitting alongside an investment property, a share portfolio or a loan to a connected company is how the total quietly accumulates. With the relief rate now 18% on qualifying gains from 6 April 2026, the cost of failing the test has risen.

Our client is keeping it for a possible acquisition. Does that protect it?

Not on its own. That was very nearly the argument the executors ran in Barclays Bank Trust Co Ltd v IRC: the cash was held as a contingency in case an appropriate business opportunity arose. It did not save the £300,000. A general intention to be ready for something is not the same as an asset being required for the future use of the business, and the distinction turns on evidence created at the time rather than an explanation offered afterwards. Board minutes naming a target, a heads of terms, a quotation for plant, a lender's term sheet — those are the things that turn an intention into a documented purpose.

Is raising this the same as recommending an investment?

No, provided you stop where the regulated work starts. Observing that £440,000 appears to exceed what the business needs, that it currently attracts no relief on death, and that nobody has taken a decision about it, is professional judgement about a client's balance sheet. Naming a product, a provider, a fund or a contribution figure is not, and an accountancy practice without the relevant FCA permissions cannot do it. The clean version of the conversation is to state what you can see, ask whether anyone has looked at it, and with the client's consent introduce someone who is authorised to. Equity & General, FCA number 474163, does the regulated half.

Business property relief and the cash in your company

The relief, in one paragraph

Business property relief can reduce or remove inheritance tax on the value of a business or of shares in a trading company. For many owner-managers it is the single largest relief that will ever apply to their estate, and it is the reason a company can pass to the next generation without a tax bill forcing a sale.

It applies to the business. It does not automatically apply to everything sitting inside the business.

Excepted assets

Where a company holds an asset that is not being used for the purposes of the business, and was not so used in the previous two years, that value can be left out of the relief. It is described as an excepted asset.

Cash is the most common example. HMRC’s own guidance to its valuers tells them to examine carefully how far cash, bank accounts and similar assets in the accounts of a business may be excepted assets, which tells you how routinely the question is asked.

How HMRC looks at it

The question is whether an asset was used wholly or mainly for the purposes of the business, throughout the two years before the transfer or since acquisition.

HMRC’s own internal guidance to its valuers is explicit that they should examine carefully the extent to which cash, bank accounts, building society accounts and similar assets included in the accounts of a business may be excepted assets. In other words, this is a routine enquiry rather than an unlucky one.

The rules and the rates attaching to business property relief have been subject to announced change. Anything read online may predate the current position, so check where things stand before relying on it.

There is no threshold

People look for a figure, or a percentage of turnover, and there is not one. The test is whether the cash is beyond the reasonable requirements of the business, and that is answered by reference to your company.

What makes cash defensible is evidence that it has a purpose:

A stated policy about how many months of overheads the company holds, and why.
Capital expenditure that is budgeted rather than merely intended.
A contractual or regulatory requirement to hold funds.
A history showing the balance being drawn down and rebuilt, rather than only rising.

What makes it hard to defend is a balance that has risen every year for five years with nothing written down against it.

What helps, and what does not

Helps: a written cash policy with a stated number of months and a reason; budgeted capital expenditure with dates and figures; a contractual or regulatory requirement to hold funds; a history of the balance falling as well as rising.
Does not help: a general intention to invest in the business one day; the fact that the sector is cyclical, asserted without evidence; a balance that has only ever risen; describing money as a reserve after the event.

None of this is about the amount. It is about whether there is a reason for the amount, recorded at the time rather than reconstructed later.

The related question

The same facts affect a second relief. Relief on a sale of the business depends on the company being a trading company, and a large enough non-trading cash or investment position puts that in question too.

So a single balance can affect both what happens if you sell and what happens if you die, which is why it is worth looking at deliberately rather than discovering later.

Questions owners ask

Does taking the cash out solve it? It changes the position, and it creates a personal tax charge and a personal asset that may itself be in the estate. It is a trade, not a fix, and needs looking at as a whole.
Does a group structure help? Sometimes, and it brings its own consequences. It is a question for your accountant and a tax adviser together.
What if the company owns property it does not trade from? Investment property raises the same excepted-asset question as cash, and often more sharply.
Should I do anything now? The cheapest useful step is to write down why the company holds what it holds, and to keep doing so.

What to do next

Ask your accountant what proportion of the company’s balance sheet they would regard as surplus to the needs of the trade, and whether they think it is large enough to raise the excepted assets question.

If it is, the answer involves both tax planning and personal financial planning, and the two need to be looked at together rather than in sequence.

This article explains how the rules work. It is not advice about what you should do, and it does not take your own circumstances into account. Your accountant is the right place to start, and they can introduce you to a regulated adviser if the answer needs one.

Business property relief and company cash