BPR changes and minority shareholders: 5 common misconceptions

Business owners are facing a new reality from 6 April 2026 when the 100% rate of business property relief for inheritance tax purposes will be restricted to the new £2.5m allowance.

Since this £2.5m allowance can be enjoyed by both individuals and trustees (where conditions allow) there is an incentive to divide up a business into multiple shareholdings in order to maximise inheritance tax relief.

Business owners may assume that, so long as they retain control of their company, the introduction of minority shareholders should not change the way they do business. Here are five assumptions that challenge that in the context of minority shareholder disputes:

1. Minority shareholders can be outvoted and have to accept my decisions

Minority shareholders are a protected species as a matter of English law. Whereas they will always be in a prejudiced position (because they can be outvoted) the law provides protection where a minority shareholder suffers prejudice which is also ‘unfair’.

Section 994 of the Companies Act 2006 enables an unfairly prejudiced shareholder to apply to court to hold the company to account. The most likely remedy is for the court to order that the minority shareholder’s shares are purchased at a fair value.

2. I can extract value from the company so long as the business can afford it

Unfair prejudice claims will often include allegations that a business owner has extracted value from the company to the detriment of minority shareholders. This may include a business owner (1) paying themselves a salary above what they could reasonably be expected to receive in the market (2) enjoying benefits from the company in the form of use of business property or services paid for by the company or (3) deciding not to declare dividends absent reasonable commercial justification.

3. My business affairs are confidential

In the context of an unfair prejudice claim the court may require both the company and shareholders to disclose a wide range of documents that are relevant to the issues.

These may extend to emails and text messages. Since claims are typically heard in open court there is a risk that private communications could be made public and referred to in a public court judgment. This can pose a significant reputational risk for a business.

4. Minority shareholders can only be bought out if it is affordable

The court has wide discretion as to the price at which a minority shareholder is bought out. It does not need to be affordable and may involve compensation for historic value extracted from a company. This could give rise to the company having to take on the cost of third party borrowing or for assets to be sold.

5. I cannot plan for disputes in advance

The risk of minority shareholder disputes arising can be mitigated by business founders ensuring that their corporate governance is robust and updated as required to take account of multiple shareholders. That may usefully involve implementing a shareholders’ agreement to regulate shareholder relations. This may require a culture shift whereby a business founder has been used to calling the shots. Business founders should be prepared to justify the way in which value is extracted by them from the business.

Since trustees can also enjoy the £2.5m BPR allowance, the use of trusts can inject some useful stability into a shareholding structure on the basis trustees must act in accordance with fiduciary duties and cannot act capriciously. This may be a useful mechanism to balance potential shareholders who are inexperienced. Beware however, trustees who lose the trust and confidence of their beneficiaries can be vulnerable to being removed. Some Directors’ and Officers’ insurance provides cover for legal fees defending unfair prejudice claims and it is worth checking this with an insurance broker.

Conclusion

Claims for unfair prejudice brought by minority shareholders are not only potentially expensive to defend, the court’s wide discretion around the price at which minority shareholders are bought out can create uncertain financial liabilities. Even if a claim is successfully defended in court, there may still be reputational damage to the company arising from relationship breakdowns within the business being put into the public domain.

Business owners restructuring their business for inheritance tax purposes should therefore be alive to the risks of introducing minority shareholders and ensure their business practices are reviewed in tandem.