Business Relief and its use to mitigate Inheritance Tax
Business Relief is a long-standing government initiative designed to support investment in UK trading businesses by offering up to 100% relief from Inheritance Tax (IHT). Previously referred to as Business Property Relief (BPR), Business Relief is part of inheritance tax law and is enshrined in legislation.
First introduced in 1976, Business Relief allows qualifying assets to be passed on free from IHT, provided they’ve been held for at least two years at the time of death.
IHT is a tax collected by HM Revenue & Customs (HMRC) and is calculated on the value of the estate a person leaves behind when they die. The amount of IHT due on an estate can depend on numerous factors but is currently set at 40% above the Nil Rate Band.
There are a number of options available to individuals to help plan and mitigate IHT with Business Relief being one of the most popular and flexible solutions.
Unlike other IHT planning strategies such as gifts or trusts, BR enables investors to retain ownership and, in many cases, access to their capital. It can be a fast and flexible solution for individuals looking to reduce their estate’s IHT liability while maintaining control of their investments.
Using a dedicated investment manager is one of the most straightforward ways to take advantage of Business Relief and therefore IHT relief. The investment manager will invest a client’s money into a portfolio of companies it expects to be Business Relief qualifying.
Key Features & Benefits
- Inheritance Tax Relief: Business Relief-qualifying investments can offer up to 100% IHT relief if held for at least two years and at the time of death.
- Two Year Qualification Period: Unlike gifts or trusts, which typically require a seven-year timeframe, investment into Business Relief assets can become IHT-exempt after just two years.
- Investor Control: Investors usually retain ownership and access to their capital, unlike gifting strategies. Withdrawals may be possible, subject to liquidity.
- No Age or Medical Limits: Business Relief solutions do not require medical underwriting and can be used by older clients or those in ill health.
- Asset-Backed Strategies: Many Business Relief portfolios include asset-backed businesses in sectors like infrastructure, renewable energy, and lending, offering stability and diversification.
Historical Context & Impact
Business Relief was introduced by the UK government in 1976 to help support the continuity of family businesses by reducing the burden of IHT. The original focus was to prevent small businesses having to be sold or broken up when the business owner passed away in order to meet an IHT liability, thereby enabling a business to be passed on from one generation to the next.
Over time, its scope has expanded to include a broader range of trading businesses and investment solutions. Today, Business Relief plays a key role in estate planning by encouraging investment in UK enterprise, helping preserve family wealth, and supporting sectors such as infrastructure, renewable energy, and lending/leasing activity. It remains one of the few IHT strategies that offers both flexibility and full tax relief after just two years.
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Qualifying Companies
For an investment to qualify for Business Relief, it must be in a company that meets HMRC’s definition of a trading business. Generally, the company must be carrying out a qualifying trade and not primarily involved in excluded activities such as investment, land dealing, or property development.
Most Business Relief qualifying investments are made into unquoted private companies or companies listed on the AIM market, provided they meet the necessary conditions.
To learn more about eligibility requirements, visit the official HMRC guidance here.
FAQs
Business Relief is a government-approved scheme that offers up to 100% Inheritance Tax (IHT) relief on qualifying business assets if held for at least two years at the time of death.
BR investments provide 100% IHT relief after a two-year holding period, making them one of the fastest and most flexible estate planning tools available. Investors can retain ownership and, in many cases, access to capital.
Companies must be trading businesses, typically unlisted or AIM-listed, and not primarily engaged in excluded activities (e.g. property development).
As with any investment, BR carries risks including capital loss, poor performance, illiquidity, changes in tax legislation, and dependency on the underlying company’s qualifying status.
The investor must hold the investment for a minimum of two years and still own it at the time of death to receive full IHT relief.
BR is suitable for UK individuals with large estates, those seeking IHT mitigation, or those unable to use gifting or trust strategies due to age, health, or control requirements.
- Clients typically invest in BR-qualifying companies through a discretionary portfolio service managed by an Investment Manager or estate planning provider. Direct investment into BR-qualifying shares is possible only by purchasing shares in eligible companies listed on the Alternative Investment Market (AIM) through a stockbroker. However, this approach is less common and retail investors should always seek advice from a regulated financial adviser before proceeding.
In many cases if investing by way of an Investment Manager, yes. Unlike gifts or trusts, a BR service run by an Investment Manager may allow for withdrawals, though this depends on the investment provider and underlying liquidity.
Yes. BR can complement pensions, trusts and gifting as well as use of other statutory reliefs to create a broader IHT strategy.
No. BR products do not require medical checks and are often used by clients who are older or ineligible for life cover.
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