Inheritance tax (IHT) is usually charged at 40%, making it one of the highest taxes collected by HMRC. But, with some knowledge of the various forms of tax relief that can be applied, it’s possible to arrange your wealth to pass on more to your loved ones, either during your lifetime or after you die.

Business Relief (BR) is one of these forms of tax relief. It allows you to claim IHT relief on qualifying assets including business assets you own and shares in qualifying businesses.

Assets that qualify for Business Relief

Business Relief is typically available for the following assets, which can be passed either while the owner is still alive or as part of their will:

  • Shares in an unquoted qualifying company
  • Shares in a qualifying company listed on the Alternative Investment Market (AIM)
  • An unincorporated qualifying trading business, or an interest in one
Depending on the type of asset, BR can be applied at either 50% or 100% (meaning either 50% or 100% of the tax due will be discounted).

To receive BR, you must have owned the business or qualifying assets for at least two years before your death.
Using Business Relief in Inheritance Tax planning

If you own your own business and want to pass it on to someone else after you die, BR is intended to help you do that without creating a tax liability.

But BR can play a key role in IHT planning even if you don’t own your own business. Investing in BR qualifying investments can be an effective way of reducing your IHT liability.

The key benefits of investing in a BR scheme are:

  • the speed at which the investment capital can be outside of your estate (within 2 years)
  • the access and control you can retain over your money
  • the opportunity of investment growth outside of your estate
AIM-listed shares can be held within an ISA, meaning that investors can hold BR-qualifying shares within a tax-efficient wrapper.
Understanding the risks of Business Relief

It’s important to understand that many BR-qualifying assets, such as unlisted or AIM-listed businesses, are considered very high-risk investments. They can fall in value whilst being more difficult to sell, and you may not get back what you invested.

Also, tax rules and reliefs can change and there’s no guarantee that companies that qualify today will remain BR-qualifying assets in the future.

Still, BR can be a valuable IHT planning tool given that it can provide relief of up to 100% after you pass away. As with all areas of taxation, however, Business Relief is a complex area. It’s therefore a good idea to speak to a financial adviser who can review your overall estate planning needs and recommend the most suitable solution with regards to Inheritance tax planning.

Important information

The information contained in this article does not constitute a personal recommendation and the investment or investment services referred to may not be suitable for all investors. Any opinion or estimate expressed in this publication is Investec Wealth & Investment’s current opinion as of the date of this article and is subject to change without notice. The value of investments and any income from them is not guaranteed and may go down as well as up; you may get back less than the amount invested. Past performance is not an indication of future performance.

Investec Wealth & Investment (UK) is a trading name of Investec Wealth & Investment Limited which is a subsidiary of Rathbones Group Plc. Investec Wealth & Investment Limited is authorised and regulated by the Financial Conduct Authority and is registered in England. Registered No. 2122340. Registered Office: 30 Gresham Street. London. EC2V 7QN.