When it comes to estate planning, Inheritance Tax (IHT) is often treated as a distant concern—something to address later in life, if at all. Unfortunately, this delay can result in substantial portions of an estate being lost unnecessarily to tax. For business owners and high-net-worth individuals, the earlier estate planning is addressed, the more effective and flexible the available solutions become.
The opportunity that Business Relief presents
Business Relief (BR) is a well-established but frequently overlooked measure that can dramatically reduce the IHT burden on a person’s estate. Introduced by the UK government to support family businesses and entrepreneurship, BR enables certain types of business assets to be passed down free of IHT—providing they’ve been held for at least two years before death.
Depending on the type of asset, BR can offer either 50% or 100% relief from inheritance tax, which can equate to hundreds of thousands—or even millions—of pounds in tax savings.
Qualifying assets include:
- Shares in unlisted trading companies, including family-run private companies
- Shares listed on the Alternative Investment Market (AIM)
- Land, buildings, or machinery used in a business you own or control
These provisions make BR especially valuable for entrepreneurs who want to ensure their family business continues after they’re gone, or for investors seeking IHT-efficient opportunities.
The benefits of acting early
Planning ahead allows you to integrate BR into a wider estate and succession plan. For example, you may want to combine BR with trusts to achieve both tax efficiency and control or use BR alongside gifting strategies to further reduce the size of your taxable estate.
Early planning also gives you time to structure ownership in a way that ensures assets will qualify for relief. For example, ensuring that excess cash in a business doesn’t disqualify the entire company from relief—a common pitfall that catches many business owners unaware.
Moreover, planning early often allows you to retain control and flexibility over your assets during your lifetime, something that traditional gifting strategies may not provide.
Practical scenarios showing Business Relief in action
Here are some examples of how Business Relief can be tailored to suit different needs and circumstances:
- Retired couple with no inheritance tax provisions in place
Despite being later in life, the couple invests £500,000 into BR-qualifying AIM-listed companies. If one spouse survives for two more years, the full amount may be passed to their children tax-free—resulting in a potential £100,000 tax saving (Based on 50% relief for an AIM listed investment). - Mid-career business owner seeking balance between control and planning
A 55-year-old entrepreneur isn’t ready to give up control of their capital. By shifting part of their portfolio into BR-eligible investments, they maintain access while still benefiting from tax relief after two years. This strategy offers a middle ground between liquidity and legacy planning. - Business owner establishing a family trust
A client wants to earmark £600,000 for future generations without gifting it outright. By investing in BR-qualifying assets and placing them in a discretionary trust and following a 2-year holding period, they achieve both IHT efficiency and ring-fencing, keeping the capital within the family and protected from divorce, creditors, or financial mismanagement. - Family business with significant non-trading assets
A father and son co-own a £10 million company that includes £3 million in surplus cash. HMRC may treat this cash as ineligible for relief. By redirecting some of the surplus into BR-approved assets, they protect more of the business’s value from future tax charges and retain operational flexibility.
Avoiding common pitfalls
While BR offers significant advantages, it’s not without risks. For example, investments in unquoted and AIM-listed companies can be volatile, and the rules around eligibility can be nuanced. If a company’s activities are deemed to be non-trading—such as holding investments or property—the relief may be denied altogether.
Additionally, not all cash held by a business qualifies for relief. Excess cash not used for day-to-day operations can invalidate the relief on part or all of the business, underscoring the need for proper structuring and advice.
Is Business Relief the right fit for your estate plan?
Business Relief can be a powerful estate planning tool, but it must be used strategically. It is most effective when tailored to your overall financial goals, succession plans, and risk tolerance. For some, BR will be part of a wider estate planning strategy that includes trusts, and charitable giving. For others, it may serve as the cornerstone of their IHT mitigation approach.
By partnering with a financial planner who specialises in IHT and BR, you can ensure your plan is tax-efficient, compliant with HMRC guidelines, and reflective of your long-term goals.
If you’re a business owner looking to protect the wealth you’ve built, we’re here to help. Our expert advisers offer personalised guidance on how Business Relief can work for you, your family, and your business.
