Taxation and inheritance freedom: the real lesson of the British reform

LONDON -- The recent reform of Inheritance Tax in the United Kingdom has sparked intense debate among business owners, professionals, and international families. Much of the commentary has focused on the increase in the tax burden and the economic consequences that could follow. In my view, however, the real issue is another one -- the gradual reduction of the freedom to plan succession, which for a long time has been one of the main strengths of the British system.

Historically, the United Kingdom has offered a particularly effective combination of testamentary freedom and tax reliefs designed to support the continuity of family businesses. An entrepreneur could freely decide to whom to leave their assets and, thanks to Business Property Relief (BPR), could often transfer the family business to the next generation without significant inheritance tax.

This mechanism made it possible not only to reduce the tax burden, but above all to ensure the generational transfer of the business in accordance with the entrepreneur’s wishes. In many cases, business assets were left directly to the children involved in the company, while other assets were allocated to the spouse or other family members, following a personalized planning approach.

Recent legislative changes risk upsetting this balance.

It is important to emphasize that the British legislature has not removed one of the traditional pillars of the English succession system -- the so-called “spouse exemption.” It is still possible to transfer assets to a spouse without inheritance tax being applied.

However, the reduction in relief applicable to business assets has a significant practical consequence. Many families may find themselves in a position where they leave the business to the spouse, benefiting from the spousal exemption, rather than transferring it directly to their children or to the successors identified as best suited to continue the business.

In other words, testamentary freedom is not formally restricted, but the economic ability to exercise it is.

In the past, an entrepreneur could freely leave the business to their children and other assets to their spouse. Today, in many cases, the most tax-efficient solution may be to transfer the business to the surviving spouse as well, postponing the actual generational transfer until a later time.

The result is that the tax system increasingly ends up influencing inheritance decisions.

For those coming from the common law tradition, this is a particularly significant change. One of the fundamental principles of this system has always been to allow people to decide freely what becomes of the wealth they have accumulated over the course of their lives. If the tax cost of certain choices becomes too high, freedom remains formally intact, but becomes less practical to exercise.

It is therefore no surprise that many entrepreneurs and high net worth individuals are considering other European jurisdictions, including Italy.

Looking exclusively at the numbers, the comparison may appear favorable. Italian inheritance tax generally remains lower than British inheritance tax and, in many cases, features particularly advantageous rates and allowances.

However, it would be a mistake to focus solely on the tax comparison.

Italy operates within a completely different legal tradition. Our legal system continues to provide for forced heirship rules, which reserve part of the estate for certain family members, limiting the testator’s freedom to dispose of their assets.

This gives rise to an interesting paradox.

In the United Kingdom, testamentary freedom remains theoretically broad, but is now increasingly affected by significant tax constraints. In Italy, by contrast, the tax burden may be lower, but succession freedom encounters clearly defined limits under civil law.

For this reason, anyone planning an international succession should never focus exclusively on tax savings.

The real question is not how much tax will be paid, but whether the estate will be transferred in accordance with the wishes of the person making the disposition, whether the business will be able to continue operating under stable leadership, and whether the instruments adopted will be able to prevent family conflicts and succession disputes.

In this context, proper will planning, the use of trusts, family holding companies, foundations, family agreements, and all those instruments that make it possible to coordinate tax, asset, and family objectives play a fundamental role.

This is precisely why the lesson emerging from the British reform is not solely about taxation.

It invites us to reflect on the relationship between taxation, testamentary freedom, and the continuity of family businesses.

Perhaps the ideal model would be one that succeeds in combining moderate taxation with a higher degree of autonomy in inheritance planning. From this perspective, it seems reasonable to hope that the Italian legislature, too, will begin to consider the evolution of rules governing reserved shares.

Naturally, every system must continue to provide adequate protection for the most vulnerable family members. However, in an increasingly international society, characterized by blended families, assets spread across multiple countries, and increasingly complex business structures, greater freedom in planning could help promote business continuity, reduce litigation, and better respect the wishes of those who built the estate.

The real competition among jurisdictions is not based solely on tax rates, but on their ability to offer legal certainty, flexibility, and effective tools for intergenerational wealth transfer.

And it is probably on this ground that inheritance reforms in the coming years will be assessed.

Alessandro Umberto Belluzzo

Barrister-at-Law (England & Wales) – TEPFounder & Equity Partner, Belluzzo International Partners

Professor, European School of Economics