Introduction

Most people want to leave as much as possible to their loved ones on their death. The last few years have seen a significant rise in the value of people's property and assets, but the threshold at which IHT is payable hasn’t changed – so the amount collected in IHT has increased, and according to the Office for Budget Responsibility (OBR), the number of estates on which IHT is payable will reach 50,000 annually by 2026 – up from 22,000 in 2018/19.

BR is a tax relief that is offered on unlisted companies, including companies quoted on AIM and small family businesses that are private trading companies. In general, as long as the company that the shares are being held in is a trading company, they can attract Business Relief – however, certain qualifying restrictions apply. This means that if your client has owned these shares for at least two years upon death, no IHT is due on those shares.

Tax reliefs associated with Business Relief

Business Relief can provide up to 100% relief on IHT on the value of the business or its assets, provided certain conditions are met:

• The investor must have owned the business assets or shares for at least two years at the time of their death.
• The business must not be subject to a binding contract for sale at the time of the investor's death.
• The company must be a qualifying company, as described below.

It's important to note that while Business Relief can significantly reduce inheritance tax, it doesn't provide relief from other forms of taxation like income tax or capital gains tax.

Ways to invest

There are two main routes to making Business Relief qualifying investments:

Direct Investment: Investors can directly buy shares or assets in a qualifying business. This approach requires a deep understanding of the business, industry, and overall market conditions to minimise risk.

Managed investment schemes and discretionary portfolio services: Fund managers provide access to portfolios of companies that seek to qualify for Business Relief. Such services offer the opportunity to diversify risk and ensure professional oversight of investors' capital.

Types of companies that qualify for Business Relief

To qualify for Business Relief, companies must be trading companies, not investment companies, meaning that more than 50% of activity is trading as opposed to investment activity.

In addition, the company cannot be listed on a recognised investment exchange. However, companies quoted on the Alternative Investment Market (AIM) may qualify for Business Relief if they are trading. 

Key benefits of a Business Relief investment

Investing in Business Relief qualifying investments attracts a number of benefits, namely: 

Inheritance Tax Planning: Business Relief is a crucial tool in estate planning. By investing in qualifying businesses, you can reduce the inheritance tax liability on your estate.

Supporting Smaller Businesses: By investing in Business Relief qualifying companies, investors can support smaller or riskier businesses that might otherwise struggle to raise capital. This can help drive innovation and economic growth.

However, please note that tax rules may change, which could affect the reliefs available for IHT purposes. Tax reliefs are subject to individual circumstances, and independent tax advice should be taken. While the Tax Adviser will also carry out an annual review of the portfolio, we can’t guarantee that all portfolio investments will qualify for BR. If a company should be non-qualifying when selected for the portfolio or become non-qualifying thereafter, then any applicable BR could be reduced accordingly.