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.

Selling your business: what has to happen two years before

The timing problem

A typical sequence runs like this. An approach arrives in the spring. You mention it to your accountant in the summer, by which point heads of terms are agreed. Due diligence runs through the autumn, and completion is aimed at the year end.

Nobody behaves badly in that sequence. It is simply that by the time anyone with a planning role hears about it, the decisions that would have changed the outcome are already behind you.

The signals that a sale is closer than you think

Owners rarely announce a decision to sell. It emerges, and usually the accountant can see it before it is said out loud.

You are in your late fifties or sixties and there is no successor inside the business.
Capital expenditure has stopped while profits have held up.
A competitor in your sector has sold, which tends to start people thinking.
You have had an approach, however casual, and did not entirely dismiss it.
You have started tidying the accounts, or produced management information where there was none.

Any two of those together is a reason to have the conversation now rather than when a buyer appears.

What needs the lead time

Relief conditions. Relief on a business disposal depends on conditions being met before the sale, including a qualifying period. Shareholdings, officer or employee status and the company’s trading status all matter, and some of them take time to put right.
Trading status. A company carrying substantial non-trading assets, usually surplus cash or investment property, can put relief at risk. That is not something to fix in the weeks before completion.
Pension funding. Employer contributions made while the company is still trading and profitable are a different proposition from anything available once the money has left the company.
The shape of the deal. Cash, deferred consideration, earn-out and loan notes each land differently for you, and the differences are worth understanding before you agree to one.

A rough timetable

Three years out. Every option is open. Shareholdings, trading status, pension funding and the shape of the business can all still be changed.
Two years out. Qualifying periods for relief can still be met. Employer pension contributions can still be made from a trading company. Any non-trading assets can still be dealt with.
One year out. Narrowing. Some things can still be tidied, but the accounts a buyer will look at are largely written.
Three months out. You are executing, not planning. What is left is getting the deal done properly and understanding what you have agreed to.

The half nobody prepares for

Tax dominates the conversation because it has a number attached. The things that decide whether you are happy two years afterwards usually go untouched.

What the money actually has to do. A sum that sounds enormous has to fund thirty years or more, including a period of care for many people. Very few owners have connected the price to an income requirement.
What you will do. Owners who sell without a plan for their time often buy another business within two years, which is rarely what they intended.
The earn-out. Working for the buyer for two years changes your income, your tax position and your day-to-day life.
The family. A sale usually triggers the first serious conversation about your estate, and it arrives at the point you are busiest.

Questions owners ask

Should I tell my accountant before I have a buyer? Yes, and it is the single most useful thing on this page. Nothing is committed by having the conversation.
Does an earn-out change my tax position? It can change both the amount and the timing, and it is worth understanding before you agree the structure rather than afterwards.
What about the cash sitting in the company? It can affect whether the company still counts as a trading company, which affects relief. It is one of the first things to look at.
How much will I need afterwards? That is the question almost nobody has answered, and it is the one that decides whether the price on offer is actually enough.

What to do next

If a sale is a possibility within five years, tell your accountant now, while it is still hypothetical. That single conversation is worth more than anything that can be done once a buyer exists.

Three years out, you have every option. Three months out, you have almost none.

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.

Selling your business