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.

Your pension and inheritance tax from April 2027

What is changing

For some years, money left in a pension has generally sat outside the estate for inheritance tax. That produced a reasonably common piece of planning: spend other savings first, leave the pension alone, and pass it on.

Unused pension funds and death benefits are expected to come within the estate for inheritance tax from April 2027. The planning above is built on an assumption that is being removed.

Who this affects most

Anyone who has deliberately left a pension untouched in order to pass it on.
Owner-managers with a substantial pension built through employer contributions, particularly alongside a company that may also attract business property relief.
People whose estate is close to a threshold, where the pension is the thing that pushes it over.
Anyone whose will or letter of wishes was drafted around the old treatment.

Where the interaction bites hardest

The change matters most where a pension sits alongside other assets that are already using up allowances and reliefs.

An owner with a valuable trading company, where the shares may attract business property relief and the pension will not.
A family home in an area where property values alone take the estate past the available allowances.
Someone who deliberately lived off other savings in order to leave the pension intact.
Anyone whose will was drafted on the basis that the pension passed outside the estate.

What it does not change

It does not change the reasons to have a pension. Employer contributions are still normally deductible for the company, still carry no national insurance, and still have no income tax charge when paid in.

It does not mean the pension should be emptied. Drawing large sums to move money out of a pension has an income tax cost that can easily exceed the inheritance tax being avoided, and that calculation is specific to the person.

Why emptying the pension is rarely the answer

The obvious reaction is to take money out of the pension. It is usually the wrong first move, and sometimes an expensive one.

Large withdrawals are taxed as income in the year they are taken, which can push the whole amount into a higher band and, at certain levels, remove allowances as well. It is entirely possible to pay more in income tax to avoid a smaller amount of inheritance tax.

It also spends the thing that funds the next thirty years. The right answer depends on the size of the estate, what else is in it, the health and ages involved, and what the family actually needs, which is why it is a planning question rather than a transaction.

Why it is worth doing before rather than after

Anything involving an estate takes time: reviewing a will, considering gifts, understanding how the reliefs on a business interact with the rest. These are not decisions to take in a hurry against a deadline.

The people most affected are often the ones who did the sensible thing under the old rules, which is an uncomfortable position to be in and a good reason to look early.

Questions owners ask

Does this apply to all pensions? The change concerns unused pension funds and death benefits. How a particular arrangement is affected depends on the type of scheme and how benefits are held.
Should I change my will? Possibly, and it should be reviewed alongside the pension rather than separately. A will drafted on the old assumption may now do something different from what was intended.
What about gifting instead? One of several options, with rules of its own about timing and survival. It needs advice rather than a rule of thumb.
Is it worth waiting to see if the rules change again? The review takes time, and the people most affected are usually those who acted sensibly under the old rules. Understanding your position costs nothing and does not commit you.

What to do next

Ask your accountant whether your estate is likely to be affected, which they can usually answer approximately from what they already know.

If it is, this needs the will, the business and the pension looked at together. That involves a solicitor and a regulated adviser as well as your accountant, and starting the conversation well before April 2027 is the whole point.

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.

Your pension and inheritance tax