A Simple Guide to Business Relief Investments and Inheritance Tax

Ross Baumann, Senior Financial Planning Manager at Coole Bevis Wealth Management looks at Business Relief and why this is an attractive option for those looking to mitigate their Inheritance Tax liability.

Inheritance Tax (IHT) receipts continue to rise due largely to rising asset values against a backdrop of frozen reliefs and exemptions. Between April 2023 – September 2023, record tax receipts hit £3.9 billion, an increase of 10% for the same period in 2022.

When we consider IHT planning, we find most have some understanding of three of the four IHT pillars – Gifting, Trust and Protection, but few understand the Reliefs available. In this article, we will explore how Business Relief can be used as part of an effective IHT plan.

What is Business Relief?

Business Relief (BR) was introduced as part of the 1976 Finance Act in order to allow businesses to be passed on through generations without incurring an Inheritance Tax (IHT) liability.

Since then, it was recognized that there was value in encouraging people to invest in companies that they did not own, and the benefit of BR would be attractive for individuals looking to reduce their IHT liability.

Why BR Investing?

Speed & Simplicity

Whereas larger gifts and trusts typically take 7 years to be effective, BR investments are designed to qualify for 100% relief after a 2-year period provided they are retained until death. This can make it an attractive option, particularly for those in later life.

Investment into BR does not require any complex legal structure such as a Trust. Therefore, they are relatively easy to understand and navigate versus other options

Access & Control

Whereas gifting and trusts typically involve relinquishing control and access, BR investments remain in the control of the investor. This can be particularly desirable to those who cannot afford to give away assets they may later require.

Does not impact the nil-rate bands

Utilising BR investments means investors can plan more effectively with the assets retained within their estate that could otherwise attract IHT. Typically allowing the use of the available nil rate bands for more illiquid assets such as the main residence.

Risk & Tax

BR investments are considered high risk and capital is at risk. Certain BR assets can be more illiquid in nature and therefore disposal of these assets can be more challenging.

Tax legislation is subject to change, and this extends to potential changes in business relief.

If you would like to discuss your individual requirements, we can offer a free initial meeting where we will aim to understand more about you, where you are financially, what existing products you already have in place and importantly, what you are looking to achieve in the future. Please contact Ross on 01903 534 587 or by email ross@coolebeviswm.com to organise a meeting.

The above does not constitute individual financial advice and that you should seek professional advice for your specific circumstances. The Financial Conduct Authority does not regulate Tax, Trusts and Estate planning.