Specialist Inheritance Tax Investments and Business Property Relief

Chris Broome – Chartered Financial Planner

Specialist Inheritance Tax (IHT) investments are financial products designed to help individuals mitigate the impact of Inheritance Tax on their estate.

One common strategy is to invest in assets that qualify for Business Property Relief (BPR).

In this article, we’ll help you understand more about Business Property Relief (BPR), the two-year rule for removal from your estate, as well as the associated risks and benefits.

business property relief - inheritance tax

1. Business Property Relief (BPR)

BPR is a valuable tax relief offered by the UK government.

It allows certain business assets to be exempt from Inheritance Tax when they are passed on as part of your estate.

The idea behind BPR is to support the continuity of family businesses and encourage investment in trading companies.

2. The two-year rule for removal from your estate

One significant feature of BPR-qualifying investments is that, in most cases, they are fully exempt from Inheritance Tax after you’ve held them for at least two years.

This means that if you pass away two years or more after making the investment, the value of that investment won’t be counted as part of your taxable estate.

3. Risks associated with these investments

  • Lack of diversification: Many BPR-qualifying investments are illiquid, and you may have a significant portion of your wealth tied up in a single asset or business. This lack of diversification can be risky if the value of that asset declines.
  • Business risk: Investments in trading companies come with inherent business risks. Economic downturns, changes in market conditions, or poor management can impact the value of the business, potentially affecting the value of your investment.
  • Regulatory changes: Tax rules and regulations can change over time, potentially affecting the availability of Business Property Relief. What qualifies today may not qualify in the future.

4. Benefits of BPR investments

  • IHT mitigation: The primary benefit of BPR investments is their ability to reduce the Inheritance Tax liability on your estate. This can help you pass on more of your wealth to your heirs.
  • Long-term planning: BPR investments are often suited for individuals with long-term financial planning goals, as they require a minimum two-year holding period.
  • Support for family businesses: BPR encourages investment in family-owned businesses and can provide a lifeline for such enterprises to continue across generations.

In summary

Specialist Inheritance Tax investments with Business Property Relief can be a useful tool for estate planning.

However, they come with specific risks, such as lack of diversification and business-related risks.

It’s crucial to carefully consider your investment objectives and consult with a financial advisor to determine if these investments align with your long-term goals.

Next steps

If you have any questions about any of the above, or wish to discuss your long-term financial plans with us, please get in touch. Contact us

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.