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.

Shareholder protection: what happens to your shares if you die

The situation

You own a private company with one or two other people. Between you it is worth a considerable amount, most of it built over years. Nobody has written down what happens if one of you dies.

This is extremely common, and it is one of the few gaps where every possible outcome is worse than the one a short piece of planning would have produced.

What actually happens without an agreement

The shares form part of the deceased shareholder’s estate and pass under their will, usually to their spouse or children.

The family now holds a stake in a private company they cannot run, cannot easily value and cannot sell to anybody outside.
The surviving shareholders are in business with someone they did not choose, who may have a very different view about dividends, salaries and the future.
The family often needs cash rather than shares, and the only realistic buyers are the survivors, who may not have the money.
If the company has to fund a buy-back, the cash comes out of the business at exactly the point it is least able to spare it.

How it is normally solved

Two pieces are needed, and each is useless without the other.

A cross-option agreement. A written agreement between the shareholders that, on a death, the survivors have the option to buy and the family has the option to sell, with a mechanism for setting the price. It is structured as options rather than an obligation for tax reasons, which is one of the reasons it needs drafting properly.
Cover to pay for it. Policies that pay out on a death, arranged so the money reaches the people who need to do the buying.

An agreement with no money behind it leaves everyone with a right they cannot exercise. Money with no agreement leaves everyone arguing.

What the arrangement looks like in practice

A working arrangement has three parts, and problems almost always come from having one or two of them rather than all three.

The agreement. Cross-options: on a death, the survivors may require the family to sell, and the family may require the survivors to buy. Options rather than a binding obligation, for tax reasons.
A way of setting the price. Either a formula, or a mechanism for valuing the company at the time. Without it the agreement produces an argument rather than a transaction.
The money. Policies arranged so the funds are in the hands of whoever has to do the buying, at the point they have to do it.

Who owns the policy changes the answer

There is more than one way to arrange the cover, and the tax questions people ask depend entirely on which was used.

Own life in trust. Each shareholder insures their own life and writes the benefit in trust for the other shareholders.
Life of another. Each shareholder insures the others directly.
Company share purchase. The company holds the cover and buys back the shares itself, which brings its own requirements.

Whether premiums are deductible, whether they are a benefit in kind, and what happens on payout differ across those. It is a reason to have it set up deliberately rather than added to piecemeal over the years.

Tax questions people ask

Two come up every time, and both depend on how the arrangement is set up rather than having a single answer: whether the premiums are a benefit in kind and appear on a P11D, and whether the company gets a deduction for them.

The answers differ depending on who owns the policy, who pays, and who benefits. That is a reason to have it arranged deliberately rather than assembled piecemeal.

The three questions

Is there a shareholders’ agreement, and has anybody read it since it was drafted?
If you had to buy your co-shareholder’s stake next month, where would the money come from?
Would their family want the shares, or the money?

Questions owners ask

We have a shareholders’ agreement. Is that enough? Only if it deals with death and there is money behind it. Many agreements deal with disputes and exits and are silent on this.
Is it a benefit in kind? It depends on the structure, which is the honest answer and the reason to get it arranged properly.
What if the shareholdings are unequal? Then the cover should not be equal either. Getting that wrong is one of the commonest faults in arrangements put together without advice.
What about critical illness as well as death? Often worth considering, because a shareholder who cannot work again raises the same problem without anybody dying.

What to do next

Ask your accountant whether they have ever seen a shareholders’ agreement for the company. Very often they have not, which is itself the answer.

Putting the agreement and the cover together involves both a solicitor and a regulated adviser. Your accountant is the right person to start that conversation, because they already know the shareholding and the value.

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.

What happens to your shares if you die