Business Relief
Business Relief (BR), formerly known as Business Property Relief, has been an integral part of Inheritance Tax (IHT) legislation since its introduction through the 1976 Finance Act. It stands as a valuable exemption from inheritance tax, enabling specific investments to be passed on to beneficiaries without incurring inheritance tax. BR was established with the aim of facilitating the intergenerational transfer of small businesses, shielding them from substantial inheritance tax liabilities.
Recognising the importance of incentivising investments in trading businesses, successive governments have upheld BR as a tax relief. It encourages individuals to invest in trading businesses, whether or not they actively manage the business themselves. Assets eligible for Business Relief include agricultural land, forestry, trading businesses, and certain qualifying companies quoted on AIM. BR-qualifying investments extend beyond mere tax planning, presenting investors with an incentive to invest in unlisted trading companies or those listed on the Alternative Investment Market (AIM).
Utilising Business Relief for IHT planning enables assets to receive relief more promptly than would be possible through trusts or gifts – and, importantly, this is accomplished in the investor’s name, ensuring no loss of control over the capital. The associated tax incentives serve to offset some of the additional risks associated with investing in such companies.
Benefits of BR (IHT)
The associated tax incentives serve to offset some of the additional risks associated with investing in such companies.
Unlike gifts or assets placed in trust, shares in a BR-qualifying company become exempt from inheritance tax after just two years, provided they are still held at the time of death.
This offers a quicker route to exemption compared to the seven years required for other methods.
Investors retain control over the investment, allowing them to sell the investment and retrieve proceeds if necessary.
However, it’s important to note that shares sold or funds withdrawn from the investment will no longer be exempt from inheritance tax.
Acquiring shares or an investment in BR-qualifying companies is relatively straightforward compared to setting up trusts or using life insurance.
The process involves no complex legal structures, and there may be no need for client underwriting or medical questionnaires.
Certain investment managers can establish portfolios featuring companies eligible for BR, such as AIM-listed or unquoted companies.
As long as the investment is held for a minimum of two years and remains held at the investor’s death, it can be passed on to beneficiaries free of inheritance tax.
Married couples and civil partners benefit from a joint two-year qualifying period.
If an investor dies within two years of investing, the investment can be transferred to their surviving spouse or civil partner without resetting the two-year clock.
Risks
Investing in Business Relief carries inherent risks that investors must consider.
The value of a BR-qualifying investment portfolio depends on the performance of the invested companies, and investors may receive back less than the initial investment.
Tax treatment is subject to personal circumstances and potential future changes.
The qualification for BR relies on portfolio companies maintaining their qualifying status, and HMRC evaluates claims based on legislation in place at the time of the claim.
Investments in AIM-listed and unquoted companies are more likely to experience value fluctuations and may be less liquid than shares listed on the main market of the London Stock Exchange.
Selling these shares may pose challenges.
Investing In Inheritance Tax Services (IHT)
Overview Of AIM IHT (Alternative Investment Market Inheritance Tax)
AIM IHT products aims to assist investors in leaving more wealth to their loved ones, free from inheritance tax. The manager of the fund invests in a portfolio of companies listed on the Alternative Investment Market (AIM), anticipating qualification for Business Relief. If shares are held for a minimum of two years and are still held at the investor’s death, they can be passed on to beneficiaries without incurring inheritance tax.
Benefits of AIM IHT
Focuses on AIM-listed companies for potential inheritance tax relief, reducing the tax burden on the deceased’s estate.
Investments may become inheritance tax-free after two years.
Investors can request share sales at any time.
Invests in a curated AIM-listed portfolio for growth and dividends.
Overview Of Asset Backed IHT
Asset Backed IHT products provides investors with the opportunity to invest in shares of unquoted UK companies making a positive impact on the growth of the UK economy. The service aims for a steady, predictable, and modest level of return.
The selection process focuses on companies expected to qualify for Business Relief (BR), a government-approved exemption from inheritance tax. If the investment is held for at least two years at the time of death, it can be passed on to beneficiaries free of inheritance tax.
Benefits of Asset Backed IHT
Investments may become inheritance tax-free after two years.
Investors can request share sales at any time.
BR is an inheritance tax exemption introduced in the 1976 Finance Act, allowing specific investments in trading businesses to be passed on to beneficiaries without incurring inheritance tax.
Faster Inheritance Tax Exemption, Greater Access and Control, and Simplicity in the acquisition of shares or investments in BR-qualifying companies.
Yes, investors can retain control over their investment, allowing them to sell and retrieve proceeds if necessary. However, it’s crucial to note that sold shares or withdrawn funds are no longer exempt from inheritance tax.
Certain investment managers can establish portfolios featuring AIM-listed or unquoted companies. The investment must be held for a minimum of two years and remain held at the investor’s death.
Capital at Risk due to the performance of invested companies, Changing Tax Rules and Reliefs subject to personal circumstances and potential changes, and Volatility and Liquidity Concerns, especially with AIM-listed and unquoted companies.
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BR (IHT) Investment FAQs
Business Relief (BR) Investments
Understandable, there are many different names associated with the same kind of investment. Put simply an IHT (Inheritance Tax) Investment is an investment product that is designed to help manage Inheritance Tax liabilities upon death. These products can also be called ITS (Inheritance Tax Service) or sometimes an EPS (Estate Planning Service). All of these products utilise the governments Business Relief (BR) scheme to qualify for the tax relief.
BR is an inheritance tax exemption introduced in the 1976 Finance Act, allowing specific investments in qualifying trading businesses to be passed on to beneficiaries without incurring inheritance tax.
Investing in an IHT product that utilises BR has a number of benefits. It is far simpler than using trusts and faster to qualify for IHT exemption than gifting. Alongside this the investor has more control of the assets, enabling them to liquidate these holdings should they need to access the capital and bring this back into their estate.
Yes, investors do retain control over their investment, allowing them to sell and retrieve proceeds if necessary. This is subject to the redemption policies of the relevant products. Also, it’s crucial to note that sold shares or withdrawn funds are no longer exempt from inheritance tax.
Certain investment managers can establish portfolios featuring AIM-listed or unquoted companies. The investment must be held for a minimum of two years and remain held at the investor’s death.
These schemes will always subject to the risk of changing tax rules, if the government withdrew or changed the rules around Business Relief, then all IHT products would be affected.
At a product level the risks differ based upon the underlying assets. AIM IHT products hold portfolios of small growing companies, there is clearly a risk around volatility in the valuation of these companies, and the AIM index as a whole. Asset backed IHT products, as the name suggests, invest in portfolios of unquoted companies that are asset backed and in theory low risk, such as forestry or renewable energy companies. For this reason, the returns are lower, however, there is always a risk that these companies underperform and therefore their value decreases.
AIM IHT (Alternative Investment Market Inheritance Tax) Products
AIM IHT products aim to help investors leave more wealth to their loved ones by investing in a portfolio of companies listed on AIM, anticipating qualification for Business Relief. Once these shares are held for more than two years, they will qualify for Business Relief and therefore not come under charge upon the death of the investor.
If shares are held for a minimum of two years and remain held at the investor’s death, they can be passed on to beneficiaries without incurring inheritance tax.
AIM IHT products provide for efficient wealth transfer through the potential for Inheritance Tax relief. They benefit from the fact that after only two years, the investment becomes qualifying, this can be a more efficient way of protecting wealth upon death. As the shares are listed on the AIM market, there is liquidity should you need to access your capital again. Alongside all these benefits there are potential capital gains and dividend income from the companies into which you invest.
Returns and dividends in Asset Backed IHT can vary based on the performance of the underlying unquoted UK companies. Investors can elect to receive income, or reinvest into the product, therefore remaining outside of the investor’s estate.
There is a minimum holding period of two years to qualify for potential inheritance tax relief. Thereafter, the investment would need to be held upon death in order to avoid an Inheritance Tax charge. The investment can then be passed down to beneficiaries, or liquidated.
Yes, investors will have access to regular updates and reports about the performance and status of their Asset Backed IHT investments via the GrowthInvest platform. This is alongside any other tax efficient or private investments they may hold.
Fee structures vary by manager and should be discussed with your adviser, however some products may apply an ongoing charge to manage your investment. This would be alongside an initial charge paid up front from your investment, and indeed any initial or ongoing charges applied by your adviser.
AIM IHT investments do not target an exit like some venture based products. The product is designed to be held for the long term until the death of the investor. During that period the investment manager would endeavour to deliver growth and income aligned with that of the AIM index, and therefore the UK economy. There is, however, the opportunity to redeem your holding, should you need access to the capital. This will subject to the redemption policies of the relevant products, and it should be noted that the redemption proceeds will immediately come back into charge.
Investors can elect to receive income, or reinvest the returns into the product, therefore these additional funds remain outside of the investor’s estate.
AIM IHT can serve as part of a diversified portfolio, offering exposure to small cap equities that will track the UK economy an d has the potential to outperform the large cap indices. This being due to the fact that the companies are smaller and faster growing, it does however mean that these companies are riskier than the larger companies in the FTSE100.
Selling shares in AIM IHT may be subject to specific terms outlined in a fund’s agreement. Many provide clarity on how often they offer redemption and how long it would take to redeem a holding and receive the proceeds.
Asset Backed IHT Products
Asset Backed IHT products allow investors to invest in shares of unquoted UK companies making a positive impact on the UK economy, aiming for a steady, predictable, and modest level of return.
The selection process focuses on companies expected to qualify for Business Relief, providing an inheritance tax exemption if the investment is held for at least two years at the time of death.
Asset backed IHT products provide a theoretically low risk investment, than can quickly qualify for IHT exemption, after just two years of holding the investment. These products can also be liquidated should the investor require the capital back, which gives the investor more control than traditional IHT planning mechanisms. Please note that liquidity is subject to the redemption policies of the relevant products.
Returns and dividends in Asset Backed IHT can vary based on the performance of the underlying unquoted UK companies. Investors can elect to receive income, or reinvest into the product, therefore remaining outside of the investor’s estate.
There is a minimum holding period of two years to qualify for potential inheritance tax relief. Thereafter, the investment would need to be held upon death in order to avoid an Inheritance Tax charge. The investment can then be passed down to beneficiaries, or liquidated.
Yes, investors will have access to regular updates and reports about the performance and status of their Asset Backed IHT investments via the GrowthInvest platform. This is alongside any other tax efficient or private investments they may hold.
Fee structures vary by manager and should be discussed with your adviser, however some products may apply an ongoing charge to manage your investment. This would be alongside an initial charge paid up front from your investment, and indeed any initial or ongoing charges applied by your adviser.
Asset Backed IHT investments do not target an exit like some venture based products. The product is designed to provide long-term stable returns such that the investor can hold this until death. There is, however, the opportunity to redeem your holding, should you need access to the capital. This will subject to the redemption policies of the relevant products, and it should be noted that the redemption proceeds will immediately come back into charge.
Investors can elect to receive income, or reinvest the returns into the product, therefore these additional funds remain outside of the investors estate.
Asset Backed IHT can serve as part of a diversified portfolio, offering exposure to unquoted UK companies many with sustainability credentials as well.
Selling shares in Asset Backed IHT may be subject to specific terms outlined in a fund’s agreement. Many provide clarity on how often they offer redemption and how long it would take to redeem a holding and receive the proceeds.
