What the Inheritance Tax Reform Means for UK Tech

A plain English explainer for founders, angels, VCs, and the people who fund and build UK tech companies.

The change, in one paragraph

From 6 April 2026 the UK caps Business Property Relief at £2.5 million per person (£5 million per couple, since the allowance now transfers to a spouse). Above that, you get only 50 per cent relief — meaning an effective 20 per cent inheritance tax rate on the excess. Tax can be paid in ten annual instalments, interest-free. AIM-listed shares now get only 50 per cent relief from the first pound, no allowance. The cap was originally going to be £1 million when announced in October 2024; the government raised it to £2.5 million on 23 December 2025 after lobbying. The £2.5 million cap refreshes every seven years for individuals (ten for trusts). That is the reform. The argument is about whether the way the tax is collected — the death-event valuation of shares in private trading companies — is the right mechanism for the kind of equity tech founders, their early staff, and their early investors actually hold.

Why this matters for tech specifically

Founder equity in a growth-stage UK tech company is not like other illiquid assets. Three things make it unusual.

The value at any given moment is a paper number against an outcome that has not yet happened. A founder of a Series B SaaS company, valued at £80 million in the last round, holds shares that might eventually be worth £400 million if the company succeeds, £80 million if it muddles along, or zero if it fails. The death-event mechanism forces a single number — the death-date valuation — on top of that distribution. There is no observable market price; the value is whatever HMRC and the estate eventually agree on, after a process that often takes years. This is structurally different from a piece of farmland, where the death-date value is a reasonable proxy for what the heir will eventually realise.

The cohort is mobile. A UK tech founder can build the same company from Dubai, Singapore, Lisbon, Austin, Zurich, or Dublin. The same is not true of UK farmers, whose land is in the UK by definition. It is also less true of family-business owners in mature sectors whose customers, suppliers, and operations are physically anchored. The founder cohort that the reform most affects is the cohort with the most international optionality, and the cohort the country is most explicitly trying to retain.

The capital stack interacts with the tax in non-obvious ways. By the time a UK tech company has reached a valuation where the founder's stake breaches the £2.5 million allowance, the cap table is rarely simple. Preference shares held by VCs sit ahead of common stock held by the founder. Liquidation preferences mean the founder's economic interest in a downside outcome is much smaller than the headline valuation suggests. Anti-dilution provisions, tag-along and drag-along rights, vesting cliffs, and ratchets all affect what the founder's equity is actually worth in different scenarios. The HMRC valuation team will, in principle, take all of this into account through "discount for lack of marketability" and minority-discount adjustments. In practice, the negotiation is contested and slow, and the outcome varies materially with the quality of advice the estate can afford. None of this is a problem in cash-generative private companies where the dividend stream is observable. It is a meaningful problem in venture-backed equity.

How the reform hits each part of the UK tech funding stack

Founders

The most directly affected group, but with the widest range of outcomes depending on company stage and exit trajectory. A pre-seed or seed-stage founder with paper equity below the £2.5 million allowance is unaffected in current terms; the question is whether the company will grow into the cap. A Series B or later founder with paper equity above the cap is in scope. The death-event mechanism is operationally awkward for this cohort because the asset is illiquid, the valuation is contested, and the funding routes (instalments out of dividends, share buy-back from the company, life insurance) work differently for venture-backed companies than for cash-generative private businesses. The instalment option is meaningful — paying a £2 million IHT bill at £200,000 a year over ten years, interest-free, is more manageable than the same bill due immediately — but only if there is income to fund it. For many growth-stage founders, the company is reinvesting all its cash and dividends are not an option until exit.

The behavioural response from the founder cohort is the question every other part of this analysis depends on. The Office for Budget Responsibility's January 2025 costing of the related non-dom reform assumed 25 per cent of the most affected non-doms would leave the UK as a result of that reform. That figure is not directly transferable to the tech-founder cohort — different population, different reform, different mobility characteristics — but it is the closest published official assumption on UK high-net-worth behavioural response, and it is meaningfully large. Companies House data, reported by the Financial Times, shows 3,790 UK directors changed their primary residence to abroad between October 2024 and July 2025, a 40 per cent increase on the same period a year earlier. Most of those directors are not tech founders, and the period coincides with several other tax changes, but the named cases that have been individually reported — Nik Storonsky of Revolut, who has registered UAE residency; Herman Narula of Improbable, who has been reported as preparing to emigrate citing a mooted exit-tax rather than the BPR reform specifically; and others — are concentrated at the top of the UK tech founder cohort. Adviser surveys reported in Sifted in May 2025 cite four named UK tax-advisory firms — Wilson Partners, Evelyn Partners, Founders Law, Capital Partners — confirming a marked uptick in tech-founder enquiries about UAE relocation, with one firm reporting that UAE relocation features in 15 to 20 per cent of all new business enquiries.

The widely-cited figure of 16,500 millionaires leaving the UK has been forensically debunked by Tax Policy Associates and Tax Justice Network and should not be cited as evidence by anyone serious about this question. The narrower findings above — the OBR's 25 per cent assumption (with the caveat that it is for a different population), the Companies House director-departure data (with the caveat about contamination), and the named tech-founder cases — are not subject to those objections. Something is happening; the scale is uncertain; the IHT reform is one of several pressures rather than the sole driver.

Angel investors

UK angel investors, including those investing through the Enterprise Investment Scheme (EIS), face a more complex picture than founders. EIS shares qualify for BPR if held for at least two years, so an EIS portfolio is potentially relievable on death — but only up to the new £2.5 million combined APR/BPR allowance. An angel with a portfolio of twenty EIS positions across ten years of investing, totalling £4 million in cost basis and perhaps £8 million in current value, is materially in scope. The reform changes EIS economics for the most active angels in two ways: it caps the inheritance tax shelter at £2.5 million, and it interacts with the existing EIS rules (income tax relief, CGT exemption on disposal, loss relief on failures) in ways that the practitioner literature is still working through.

For active angels, the practical effect is that the EIS scheme remains attractive on the front end (income tax relief, CGT exemption, loss relief) but the back-end inheritance tax shelter is less generous than it was. Most angel portfolios are not concentrated enough in a single position to produce death-date valuation disputes of the kind founders face. The EIS structure also means investments are spread across many companies, smoothing the outcome distribution at the portfolio level. For the most active and most capitalised angels — the cohort that funds a meaningful share of UK seed-stage tech — the reform is meaningful but not existential.

The harder question is downstream. If founders relocate, the deal flow that angels see thins out. If the most experienced angels relocate, the seed-stage funding ecosystem loses both capital and the operator-investor expertise that makes UK angel money distinctively useful. The reform's first-order effect on angels is moderate. Its second-order effect — through the founder cohort it interacts with — is the question that matters more.

Venture capital and growth equity (LP interests)

BPR treatment of venture or growth-fund interests is structure-specific, and a meaningful share of fund-investment vehicles may not qualify because investment businesses and dealing in shares are excluded from BPR. The detail matters: many UK venture and growth equity funds investing predominantly in qualifying trading companies are eligible at the LP-interest level, subject to the two-year holding period; some are not. For a UK-resident individual investing as an LP in a fund that does qualify, the interest is BPR-eligible up to the £2.5 million allowance, and a high-net-worth UK-resident LP with several committed positions can be materially in scope above the cap. For funds that do not qualify — typically those with material public-equity sleeves, real-asset exposures, or significant non-trading activities — there is no BPR shelter. Anyone in this position should take specialist advice on whether the specific fund structure qualifies; the publication is not the right place to settle that question.

The mechanism issue here is sharper than for founders. An LP interest in a closed-ended venture fund is illiquid by structural design — there is no realisation event until the fund itself realises the underlying portfolio, which can be eight to twelve years after commitment. Death during the fund's life produces a contested valuation against an asset class with no public market price, no liquidity option, and no buy-back mechanism. The instalment option helps but does not solve the underlying problem: the heir owes tax against a paper valuation of an asset they cannot sell and from which they may not see distributions for years.

The behavioural risk in this cohort is that high-net-worth UK individuals reduce their LP commitments to UK venture funds, or relocate to jurisdictions where their LP interests are not exposed to UK IHT in the same way. The funds themselves are mobile — most large UK-resident LPs already invest across UK, US, and European funds — and the marginal commitment that goes elsewhere is the commitment most affected by the reform. The aggregate scale of this effect is hard to estimate without HMRC microdata, but the direction is clear.

Private equity in growth tech

Private equity investing in growth-stage UK tech companies — buyout-style PE, but also growth equity at later stages — interacts with the reform mainly through the personal holdings of partners and the management equity in portfolio companies. The fund-level economics are not directly affected; the personal IHT exposure of UK-resident partners is. For the largest UK-resident PE partners, personal carry interests and direct co-investments above the £2.5 million allowance are in scope. The cohort is small but well-advised, and structural responses (trusts, holding companies, residence planning) are typically already in place. The reform's first-order effect is to accelerate planning that this cohort was largely already doing.

The effect on portfolio companies is indirect. Where founders of PE-backed UK tech companies have material personal stakes, those stakes are affected on the same terms as direct founder equity. The PE fund's interest in retaining UK founders for the duration of the hold period interacts with the founder's interest in not facing a punitive death-event tax during the hold. This is a private negotiation between PE sponsors and founders, and the reform changes its dynamics at the margins.

Early employees with vested equity

An often-overlooked group. UK tech employees who joined growth-stage companies early and now hold material vested equity above the £2.5 million allowance are in scope on the same terms as founders. This cohort includes several thousand people across the UK tech ecosystem — early engineers and operators at companies that have grown to unicorn or near-unicorn valuations. The death-event valuation problem is the same for them as for founders; the structural responses available to them (trusts, life insurance, residence planning) are similar but typically less sophisticated and less well-advised. For this cohort, the practical effect of the reform is that early-employee equity has become a more complex tax-planning question than it was, with downstream effects on how easy it is for UK tech companies to recruit and retain senior operators.

The six positions, in plain English

Six positions are being argued by people who have looked at this carefully. Each is described below in a single paragraph that sets out what the position proposes and the strongest argument advanced for and against it. The six are presented in the same length and register so a reader can weigh them on equal terms. The publication does not pick among them.

Implement the reform as written. Keep the £2.5m / £5m allowance, 50% relief above (effective 20% rate), the ten-year interest-free instalment regime, and the existing IHT-at-death mechanism. Do not adopt the four practical measures pre-emptively. Allow the regime to operate, observe what happens, revisit only if material problems emerge. The case for: the reform was the product of extensive consultation, the December 2025 amendments raised the allowance and introduced spousal transferability, the IFS / Resolution Foundation / CenTax (the most-respected UK fiscal-policy researchers on this question) broadly welcomed it, the ten-year interest-free instalment regime has been in IHT law since 1984 and is well-understood, the cohort affected is small, and historical experience suggests predicted operational catastrophes when a tax newly applies to wealthy cohorts tend to be overstated. The case against: practitioners with no personal stake (CIOT, FBRF, major firms) have argued the operational issues are real and material; the four practical measures are independently valuable and shouldn't need to wait for material problems to manifest; "wait and see" risks settling the question by exit before the data exists.

Hold the existing mechanism, with practical fixes. Keep tax-at-death. Adopt the four practical measures (closing collateralised-borrowing avoidance routes, publishing valuation methodology, tightening rules on temporary non-residence, providing structured buy-back guidance). Resource HMRC's Shares and Assets Valuation team. The case for: the cohort directly affected is small (around 220 BPR-only estates excluding AIM-only per HMRC December 2025 estimate); the principle of bringing concentrated business wealth into the inheritance tax base is delivered most cleanly by a regime that taxes at the point of generational transfer; the historical record across other taxes affecting wealthy cohorts (capital gains, top-rate income tax, the non-dom reform) is that predicted operational catastrophes have tended to be overstated. The case against: the operational mismatch between the death-event tax and the unlisted-trading-company-share asset class is real and documented in the practitioner literature (CIOT, FBRF, major firms with no personal stake in the outcome); the "wait and accumulate data" posture risks settling the question by exit before the data exists.

Change the mechanism for the affected asset class. For unlisted UK trading-company shares above the allowance, replace tax-at-death with capital gains tax charged when the heir actually sells. No base-cost uplift. Long-stop deemed disposal at year ten or fifteen. The case for: removes the valuation problem (tax is calculated against actual sale prices), removes the liquidity problem (tax is paid out of actual sale proceeds), reduces pre-emptive relocation pressure (founder location at death matters less); Australia has operated a comparable regime for forty years. The case against: switching for one asset class introduces administrative inconsistency the death-based regime does not have; the capital-gains lock-in literature (Auerbach 1989, Burman 1999) establishes that realisation-based regimes produce hold-longer behaviour and the deferral patterns documented in Australia (family-trust workarounds, valuation-gaming at the moment of inheritance when the cost base is set) would arrive in the UK; the state becomes a contingent equity holder across hundreds of private companies.

Adopt the practical fixes; defer the mechanism question. Do the four practical fixes everyone agrees on. Commission proper modelling. Decide on the mechanism question in two to three years when there is real evidence rather than projection. The case for: the four practical measures are independently valuable and would be adopted under positions A, B, and D (Position E rejects them as pre-emptive); mechanism change carries political and design risk that the practical measures do not; deferral commits Treasury to data-driven review rather than to a specific outcome. With specified, public, credible triggers (defined fiscal-cost thresholds, defined caseload thresholds, defined behavioural-response thresholds, measurement methods specified in advance), the position commits to a review process. The case against: deferral without specified triggers risks indefinite drift; the political economy of UK tax policy is that mechanism changes happen at narrow fiscal-event windows and deferring past one window typically means deferring past several; the cohort whose mobility is the consequential variable will make decisions on the regime as it stands, not on a deferred review.

Raise the threshold for a defined sub-class of qualifying unlisted trading-company shares. Keep tax-at-death. Keep the £2.5m / £5m allowance for the general BPR base. For a defined sub-class of qualifying unlisted trading-company shares, raise the 100% relief threshold to a higher figure (proposals from advisers and trade bodies range from £5m to £10m per individual). The case for: structurally a scope adjustment rather than a mechanism change; preserves the principle of the reform across most of the base while moving the cohort where the operational mismatch is sharpest above the threshold at which it bites; analogous to the way the US estate tax exempts qualifying small-business interests at higher levels through Section 6166 and the unified credit; the CenTax minimum-share-rule and upper-limit alternative-design proposals (Advani, Gazmuri-Barker, Mahajan, Summers 2025) sit within the same family. The case against: special-pleading carve-outs for sympathetic asset classes are historically how tax bases erode (the original BPR was itself such a carve-out and the reform exists because that carve-out grew unbounded); the definitional problem (what counts as a qualifying unlisted trading company) has no clean solution — SIC codes are gameable, activity-based definitions create classification disputes, EIS-style exclusion lists scale up boundary fights, R&D-intensity definitions are cleanest analytically and worst politically; the fairness objection is direct (a higher threshold for tech founders but not for a 200-year-old engineering firm requires justification, and "behavioural-response asymmetry" is a prudential answer, not a fairness one).

A founder election with a decade cap. On death, the personal representatives elect — per company — between Regime 1 (settlement at death under the reform as written) and Regime 2 (deferred realisation, sell by year ten). Under Regime 2 the rate is locked at the rate that would have applied at death; the taxable base is the greater of the actual sale proceeds or the date-of-death value (the Treasury never receives less than under Regime 1); a deemed disposal at year ten closes the file. The CGT base-cost uplift is itself deferred under Regime 2, to keep the principle clean (the heir is not taxed twice, but the uplift does not arrive ahead of the IHT that justifies it). Anti-avoidance rules — connected-party deemed disposals, exit charges if the heir leaves the UK, asset-stripping triggers, continuing-qualification conditions — close the obvious gaming routes; most of them already exist in analogous form across UK tax legislation. The case for: the bounded version of the realisation case — the valuation problem largely dissolves, the liquidity mismatch dissolves, pre-death relocation pressure is reduced, and the year-ten deemed disposal closes the door on the unbounded-deferral failure mode the case-against-B identifies in Australia. The case against: Treasury cashflow becomes lumpier within each decade; the anti-avoidance perimeter has costs and a practitioner industry will grow up around it; the horizontal-equity question (qualifying unlisted shares treated differently from listed equities, cash, or property of equal value) is real; F introduces a second mechanism for one asset class, parallel to but separate from the death-event mechanism that handles every other asset, and weakens the administrative-settledness argument case-for-A relies on. Full long-form treatment: A Founder Election with a Decade Cap; five-minute version: here.

An interest disclosure on the fourth position. The author of this publication is a UK technology founder. The fourth position is the one whose policy outcome aligns most directly with the commercial interest of the cohort the author is part of. The case for and the case against are presented above in the same length and register as the other five. The reader should weight the alignment between the author's standing and that position's outcome when assessing the case-for paragraph.

What is already happening on the ground

The behavioural response started when the reform was announced in October 2024, eighteen months before it took effect. By April 2026 the most mobile founders had already made decisions — some left, some restructured, some put plans on hold to see what the final regime looked like. The £1 million-to-£2.5 million concession in December 2025 changed the calculation for some of them; the concession history matters because it tells us the regime is responsive to evidence, but also that responsiveness has limits.

The UK venture-funded tech ecosystem in early 2026 is in a particular state. Capital deployment is steady but cautious. Founders considering where to incorporate the next company are weighing UK alongside Delaware, Singapore, and the UAE more openly than they were two years ago. Senior operators considering where to take their next role are factoring inheritance tax exposure into compensation conversations in a way they did not need to before. Angels and VCs are watching their portfolio founders to see who relocates and who stays. None of this is catastrophic. All of it is real, and all of it is downstream of policy choices.

What we do not yet know — what no one yet knows — is the scale. The OBR's 25 per cent figure is the central case for one cohort; the realised behavioural response in the tech founder cohort specifically may be lower (because UK-anchoring matters for operating companies) or higher (because tech founders have particularly strong international optionality). HMRC modelling on the question has either not been done or has not been published. The next two to three years will produce the data. Until then, anyone arguing the regime is broken or arguing the regime is fine is arguing from inference rather than evidence.

Why this matters beyond the cohort directly affected

The UK has been explicit, across multiple administrations and industrial-strategy documents, that growing more large UK tech companies is a national economic priority. The reasoning is straightforward: large successful tech companies generate disproportionate productivity gains, anchor regional ecosystems, attract international capital, and produce the kind of skilled employment growth that traditional industrial policy struggles to deliver. The country wants more Revoluts, more Improbables, more Wises, more DeepMinds. The country wants the next generation of those companies to stay UK-headquartered, UK-listed, UK-employing.

The IHT mechanism applied to founder equity is one of several policy choices that interact with that objective. It is not the most important one — the cost of capital, the listing environment, the talent pipeline, the regulatory regime, and the cost of energy all matter as much or more. But it is one of the choices, and it is one that the country can change without legislation that touches anyone outside the affected cohort.

The honest summary of the question is this: the reform is defensible in principle and the operational mechanism is contested for one specific asset class — the asset class held by the cohort the country has said it wants to grow more of. There is a defensible case for keeping the regime as it is. There is a defensible case for changing the mechanism. There is a defensible case for waiting for evidence. Reasonable people, working in good faith, will reach different views depending on which empirical outcomes they consider most likely, which normative framings they treat as primary, and how much weight they put on the country's stated industrial-strategy objectives versus the country's stated fairness-across-asset-classes objectives. The answer depends partly on what you think the regime is for, and that is a political choice rather than an empirical finding.

If you want to go deeper

Try the interactive model. The publication has built a financial model of the 25-year fiscal effect of each policy option. It is interactive — every assumption is a slider you can move, and the results recalculate as you change inputs. Open the model →

The article in its tax-policy register and the policy options paper in HMT format provide the same analysis at higher technical depth. The longer plain English version walks through the same content in more analytical detail, including the international comparators (Australia, Canada, the United States, Germany, France, Japan, South Korea) and what each of their regimes can and cannot tell us about the UK choice. The methodology piece explains how this analysis was made, what AI tools did well and badly, and the disclosures the author thinks readers should weigh.

The common reactions page sets out the likely critiques of the publication openly, with the author's responses — including the critiques the author considers serious and partly correct.

Where the equivalent arguments appear in formal institutional commentary. Several of the operational arguments in this piece — about administrative burden, about the inadequacy of the existing instalment regime for specific cohorts, about the cohort-specific behavioural-response questions — also appear in named UK institutional sources: the House of Lords Economic Affairs Finance Bill Sub-Committee report on the reform (January 2026), the Chartered Institute of Taxation's formal consultation responses (on the draft legislation and on trusts), the IFS work on horizontal equity (Adam, Miller, Sturrock 2024), and the Centre for the Analysis of Taxation's alternative-design proposals (Advani, Gazmuri-Barker, Mahajan, Summers 2025) which use the actual HMRC inheritance tax data and propose a minimum-share rule and an upper limit on relief that this piece does not engage with at depth. The Family Business Research Foundation's Kemp 2025 report and the FBRF/Cebr research project (interviews running December 2025 to May 2026) are producing the cohort-impact evidence this piece treats as not yet published. The full institutional reference stack is on the sources page. A reader who finds the operational arguments in this piece useful but who wants the institutional-grade evidence on which to base actual policy conclusions should read those sources directly; the publication's analysis is one input among many, and the institutional sources are the better-resourced ones.

On the principle. The operational analysis above takes the principle of the reform as given and analyses the mechanism. This separate piece → engages with the principle question itself and sets out the strongest cases. It is in a different register from the rest of the publication for a reason: the symmetric-presentation method that suits operational analysis is the wrong method for the principle question.

None of those pieces will tell you what to think. The author has a personal interest in the question and is honest about that. The work tries to give you the materials to think it through for yourself.

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A coda — speaking directly, once

The piece above is real and stands as analysis. The reason it exists is harder to explain in the policy register, and so I have not tried to explain it in the body of the piece. I will try to say it here, in the first person, because a reader who has got this far has earned the answer to the question they are probably asking, which is: why has this person put a day of concentrated AI-assisted work into producing institutional-grade analysis on a specific UK tax-policy question?

The Longer Look is one of eight sites I have produced over April-May 2026. The other seven, in the project's own structure: the trilogy of If This Road (the wake), orphans.ai (the diagnosis), and theheld.ai (the disposition); three small bear books — The Bear Was Right, The Bear Loved, The ADHD Bear; and The Many Builders — the names. The eight are the rest of one project. The project is about how humanity is in relation to the machines being built now, who is making them, and what is being lost and held as that relationship changes. The Many Builders names the people whose work has gone into the systems we talk about as if they had built themselves. The trilogy works through what building and loss feel like from the inside. The bear books speak in a register the policy register cannot carry.

This publication is the entry point. It treats a question that affects a specific cohort whose response to AI may matter, written in the register the cohort takes seriously, because the cohort whose attention to the larger questions might matter most are not generally the readers who would click on a site about humanity and machines directly. If the analysis has been useful to you on its own terms, I am glad. If you finish here and look at the rest of the work, that is what I built it for. The Many Builders is the place I would suggest you start.

— Doug Scott