Family businesses trying to avoid capital gains are exposed if divorce occurs, lawyers warn
Law firm Birketts has warned family businesses, including farms, who are rushing plans to avoid capital gains tax could be exposed to future risks should there be a divorce in the family.
The Treasury revealed in the Budget it was hiking capital gains tax pay to 24 per cent, at the higher rate, and up to 18 per cent for the lower rate from 6 April 2026.
As a result, the law firm said it has seen a “noticeable increase” in family-owned businesses looking to bring forward their succession planning to avoid the increased tax.
These plans include shares being passed to younger family members, usually sons and daughters, sooner than normal.
However, by rushing through these plans, lawyers are warning that this can give rise to other issues, such as what happens to the shares if the person receiving them later goes through a divorce.
Stefan Donnelly, associate at Birketts, explained: “One very effective method of ensuring that the shares in the family business are protected as far as possible is for the recipient to implement a pre- or post-nuptial agreement prior to the shares being transferred to them.”
He noted that “nuptial agreement can specifically outline what happens to the ownership of shares in the event of a divorce or separation”.
He said that this agreement “can protect the intended inheritance structure of the business by ensuring that shares are passed down to specific family members, such as children or grandchildren.”
“This prevents potential conflicts if a business owner’s spouse decides to sell their shares or pass them on to non-family members, disrupting the family business’s continuity,” he added.
Pre-nuptial agreements are not automatically enforceable in courts in England and Wales.
However, a landmark Supreme Court ruling in 2010 allowed pre-nups that are freely entered into by both parties, but it did not make agreements binding in all cases.
This comes as family businesses, especially farming businesses, have been protesting this past few months over the government’s plan to bring in inheritance tax for farm businesses worth more than £1m.