Gifting family wealth and protection from claims on divorce

This article considers the impact of the APR and BPR changes and how gifted assets may be protected from potential claims on divorce.

The Government’s overhaul of Agricultural Property Relief (APR) and Business Property Relief (BPR) presents a seismic shift for family businesses which might now be subject to Inheritance Tax (IHT). With little time left until the changes come into effect, there has been a strong focus on succession and estate planning. In this article, we focus on the impact of the changes on divorce and family law.

From April 2026, the unlimited 100% relief for qualifying business and agricultural property will be capped at £2.5 million per individual (which will be transferable between spouses and civil partners on death). Any value above this will attract only 50% relief, exposing more family wealth to IHT. Trusts will also face new limits on the relief available to trust assets. These changes are intended to target larger estates, but the ripple effects will be felt by many family businesses, especially those with succession on the horizon.

You can read more about the changes here.

As part of estate and succession planning, many family business owners may look at transferring assets, whether that is making lifetime gifts (which are potentially exempt from IHT if made seven years before death), removing or putting APR/BPR property into trusts, or restructuring the family business.

Family law aspect

It is important to consider the broader succession planning implications. If the intention for the family business is to continue for future generations, then it is important to seek advice on the best way of protecting those assets. This is where effective communication between private client and family lawyers is critical because, in aiming to reduce IHT, family business assets could accidentally be made vulnerable to claims from spouses or civil partners in the event of a divorce/dissolution.

In financial remedy proceedings on divorce/dissolution, assets fall into either a ‘marital’ or ‘non-marital’ pot. Marital assets are those acquired during the marriage, usually from personal endeavour, and non-marital assets typically include assets built up prior to the marriage but also often include gifts given and inheritance during the marriage.

Marital assets are generally shared on divorce, with the starting point being 50:50. Broadly speaking, the non-marital assets will normally be retained by the person who holds the assets. However, non-marital assets can become marital. How the assets are used during the marriage and the intention of how such assets should be treated are likely to be important factors.

As part a tax planning, parents in a family business might look to make lifetime gifts to their adult children, gift shares in the family business, or restructure the family business for example, by bringing in adult children into the business earlier than intended. The risk here is that these family assets are potentially opened up to possible sharing claims in the event of a divorce/dissolution. This is especially the case where family assets are ‘mingled’. Using the example of a family business, there is the risk that in the event of a divorce, a spouse might argue that shares in the business are marital because the couple used or lived off the dividends. Similarly, if both spouses worked in the family business, they may argue the entire business has become marital due to their joint endeavours. Other examples include gifting assets which the married couple use freely to meet outgoings, even if they only use the income from such gifts or if the gift is held in a trust or corporate structure. The same arguments may be made where an interest in a farm partnership is transferred and the couple live and/or work on the farm. In these examples, the entirety of the gifted/transferred asset could be considered part of the marital pot and shared.

Even if assets do not become marital in nature, in the event of a divorce, the needs of both parties have to be met as part of a financial settlement. In instances where needs are not met from marital assets, a court will look at using non-marital assets (such as gifts from family, early inheritance, or business assets) to meet the financially weaker party’s needs and a court may assess needs generously – not just as the bare minimum but reflective of the lifestyle lived during the marriage. Therefore, transfers of assets now for tax planning, could also potentially become the subject of a needs-based claim in the event of a divorce.

In a nutshell, assets transferred now for tax purposes may risk being ‘matrimonialised’ and shared in the event of a divorce. In a needs case, non-marital assets may risk being invaded to meet the other party’s needs.

The Supreme Court was asked, for the first time in almost 20 years, to consider the principles of sharing and matrimonialisation in the case of Standish v Standish [2025] UKSC 26. In setting out five principles relevant to the application of the sharing principle, the Supreme Court recognised that:

“In relation to a scheme designed to save tax, under which one spouse transfers an asset to the other spouse, the parties’ dealings with the asset, irrespective of the time period involved, do not normally show that the asset is being treated as shared between them.”

Therefore, where the transfer of assets is for the purpose of tax planning, evidencing the intention of the transfer is key. If the intentions about tax/estate planning are unclear or challenged in proceedings these transfers could result in greater exposure in respect of sharing claims.

You can read more about the Standish decision here.

Pre/post-nuptial agreements

A nuptial agreement can be used to mitigate the unwanted risks of tax and estate planning and, following the decision in Standish, are now of even greater importance. In 2010, the Supreme Court confirmed in the case of Radmacher v Granatino that nuptial agreements will be upheld if they are freely entered into by each party and there are no prevailing circumstances that would make the agreement unfair to the other party.

A nuptial agreement, whether entered into prior to marriage or after marriage, is an effective way to evidence the intentions of the parties and make clear the intention that certain assets are being transferred for tax purposes and are not intended to become marital (and therefore shared). In the event that there is already a pre-nuptial agreement in place, advice may be needed to check what the implications are from the tax planning exercise under the existing agreement.

Clients seeking advice in relation to tax/estate planning should consider the possible divorce risks and take advice from the outset. It is key for there to be joined-up thinking between tax/private client advisors to ensure the intention of the tax planning exercise is aligned with what is recorded in any nuptial agreement.

This article was written by Tamara Turner-Distin (Solicitor in the Family team) and Richard Handel (Partner in the Family team).