Is cash in your company costing your family inheritance tax?
Business relief can take your company shares out of inheritance tax, but cash the business doesn't need gets no relief. See what your spare cash costs your family, and what your options would cost.
Your answer
Answer the questions to see what your company's spare cash costs in inheritance tax.
About this calculator
For owners of a family or owner-managed trading company with cash building up in the bank.
It's a guide, not a valuation: talk to us before you move money in or out of the company.
What happens to your answers
We don’t keep them. Your answers go to our server to do the sums and aren’t stored or logged. If you copy a link to your answers, they’re in the link itself, so only share it with people you trust.
How it’s worked out
Shares in an unlisted trading company you've owned for 2 years get business relief: all of the first £2.5 million from 6 April 2026, and half above that. But the part of the value that comes from cash the business doesn't use or need for a specific plan (excepted assets) gets no relief, so it's taxed at 40%.
If investments and spare cash make up most of the company, HMRC can say it's mainly an investment company, and then no relief is due at all. HMRC weighs this in the round; we flag it when they're more than half the value. We compare putting the cash to work in the trade, paying it out as a dividend, and a company pension contribution.
Worked example
The £600,000 of cash your business doesn't need gets no business relief, and costs your family about £140,000 of inheritance tax.
single · unlisted trading company owned 2+ years · no other business or farm property · investments fully left out of relief · shares valued pro rata · £12,570 other income for the dividend
| The company's value | £3,000,000 |
|---|---|
| Your shares (100%) | £3,000,000 |
| Cash in the company | £900,000 |
| Less the cash the business needs (your estimate) | − £300,000 |
| Spare cash (not needed for the business) | £600,000 |
| Left out of the relief, your share (excepted assets) | − £600,000 |
| Value that can get business relief | £2,400,000 |
| Business relief: all of it up to £2,500,000, 50% above | − £2,400,000 |
| Your home (going to your children) | £600,000 |
| The rest of your estate | £400,000 |
| Your estate after relief | £1,600,000 |
| Less the tax-free amount | − £325,000 |
| Inheritance tax at 40% | £510,000 |
| Of which, because of your shares | £310,000 |
| If the spare cash were in the trade instead | £370,000 |
| What the spare cash costs in inheritance tax | £140,000 |
| Paid out as a dividend to you, on top of £12,570 other income | £600,000 |
| Dividend tax | £228,225 |
| Inheritance tax saved by paying it out (only the dividend tax leaves your estate) | £91,290 |
| Investments and spare cash as a share of the company (half or less) | 20% |
Worked out using HMRC's inheritance tax and business relief rules from 6 April 2026 and the dividend tax rates for 2026/27. Not legal or investment advice.
Questions people ask
How much cash can my company keep?
There's no fixed figure. Cash for working capital and for specific, real plans counts as needed. A general reserve "just in case" usually doesn't. Keep board minutes, budgets or quotes that show what it's for.
Does taking the cash out as a dividend save inheritance tax?
Not on its own. You pay dividend tax, and the money you keep is in your own estate, where it's taxed at 40% too. It only leaves your estate if you spend it or give it away and live 7 years.
What about a pension contribution from the company?
It saves Corporation Tax and dividend tax, up to the £60,000 yearly allowance. But from 6 April 2027, unused pension pots count for inheritance tax, so it no longer takes the money out of your estate.
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