The number of estates paying IHT may increase further as IHT thresholds have been frozen until April 2030, and from 6th April 2027 unused pension funds and death benefits payable from a pension will also be included in a person’s estate for IHT purposes.

However, there are reliefs available that can help mitigate this tax burden, two of which are Business Property Relief (BPR) and Enterprise Investment Schemes (EISs).

What is Inheritance Tax?

IHT is a tax on the estate of a deceased person, which includes their property, money, and possessions. The standard rate is 40% on the value of an estate above the nil-rate band, which is currently £325,000. For estates exceeding this threshold, IHT can become a significant financial liability for any heirs.

Business Property Relief

BPR is a valuable tool in estate planning for individuals, particularly those who own a business or share in a business, as it allows for a significant reduction in the value of business assets when calculating IHT.

BPR currently allows for a 100% reduction in the value of qualifying business assets (such as land, buildings, machinery and shares in unlisted companies) from the estate's value for IHT purposes. It applies to unincorporated businesses, shares in unquoted companies, and certain partnerships. To qualify, the business must have been owned for at least two years prior to the owner's death. Additionally, the business must be a trading business, not an investment business.

It should be noted that following recent Budgetary changes, from 6th April 2026 BPR will be capped at £1 million of qualifying assets, after which the relief will reduce to 50%.

By incorporating BPR into an estate plan, business owners can reduce the IHT burden, allowing for a smoother transition of the business to the next generation. This strategy not only preserves family wealth but also supports the continuity of the business itself.

Enterprise Investment Schemes

An EIS is another valuable tool for investors looking to reduce their IHT liability, offering both tax reliefs and investment opportunities in qualifying small companies. Investors can receive 30% income tax relief on investments up to £1 million per tax year, along with capital gains tax exemptions on profits from the sales of EIS shares which have been held for at least three years.

Shares held in EIS-qualifying companies are exempt from IHT after being held for two years, making them an attractive option for those looking to invest while also planning for their estate.

The reliefs not only encourage investment in smaller, high-risk businesses but also help reduce the value of an estate for IHT purposes, ultimately benefiting any heirs and contributing to economic growth.

Conclusion

As the IHT landscape continues to evolve, both BPR and EISs can play an important role in IHT liabilities. However, their use is complex, and you should always seek advice to ensure that they are suitable for your specific circumstances, objectives, and risk profile.

If you would like to discuss these, or any aspect of financial advice with one of our Wealth Planners, feel free to email us at hello@successionwealth.co.uk or call us on 0800 051 4659 and we will arrange for someone in your area to contact you.

Important risk information

Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment, and you are unlikely to be protected if something goes wrong. You could lose all the money you invest - your capital will be at risk, and you should be prepared to lose most or all your funds.

The type of investments usually held are designed for “Adventurous” investor(s) in terms of risk, and investors should be willing to accept significant investment risk in order to achieve their tax planning goals.

You won’t get your money back quickly - You should understand that such products can be illiquid, and that you may not be able to access your investments as and when required. You may also have difficulty in selling these investments at a reasonable price. In some circumstances it may be difficult to sell them at any price.

As well as investment risk, you are prepared to accept the risk that the tax rules and benefits relating to these products could be subject to change at short notice.
You are unlikely to be protected if something goes wrong - investments within these products may not covered by the Financial Services Compensation Scheme.

As such, you should not subscribe to such a scheme until you:

• You have read and understood the terms and conditions of the scheme particulars, and

• You are aware of the risks involved in such shares and such schemes
  

Please note:

The Financial Conduct Authority does not regulate advice on taxation.

This content is for general information only and does not constitute advice. The information is aimed at retail clients only.

The content of this article was accurate at the time of writing. Whilst information is considered to be true and correct at the date of publication, changes in circumstances, regulation, and legislation after the time of publication may impact on the accuracy of the article.

This information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change and tax implications will be based on your individual circumstances.

FP2024-561 – last updated December 2024