Before the 2024 Autumn Budget, speculation was rife that Business Relief would be scrapped. FTAdviser confirms that 14% of advisers saw a “substantial” number of clients pull out of Business Relief schemes as a result, while a further 73% admitted that “some” clients had withdrawn their qualifying investments.
In the event, the relief wasn’t scrapped, although Rachel Reeves did opt to make changes.
The new rules, effective from April 2026, provided clarity and some reassurance (despite a rate reduction). Now, 81% of advisers expect the number of clients using Business Relief as a tool to mitigate Inheritance Tax (IHT) to rise.
Keep reading to find out more about the changes and how they might help you manage your IHT liability.
The chancellor’s Business Relief changes will come into effect in April 2026
From April 2026, the first £1 million of qualifying assets will remain exempt from IHT, but any excess will attract relief at just 50%. This effectively levies tax at 20%.
The £1 million exemption applies across Business Relief and Agricultural Relief.
It’s also worth noting that “unquoted” shares, such as those that are AIM listed, will see their rate of Business Relief drop from 100% to 50% in all cases, again from April 2026.
These changes are designed to increase the Treasury’s tax receipts and have already led to a forecast increase. Ahead of the chancellor’s Spring Statement in March, the Office for Budget Responsibility (OBR) confirmed that IHT could raise £8.4 billion in 2024/25 (up 11.6% on 2023/24) before rising to £14.3 billion in 2029/30.
Comprehensive estate planning and IHT mitigation are more important than ever.
Moving an existing portfolio into Business Relief-qualifying investments could prove tax-efficient, but you must understand the risks
Business Relief is an important tool for growing businesses looking to access funding, but it can also help you to mitigate a large IHT bill.
Say you have an estate worth £1.5 million, including a £500,000 home that you intend to pass onto your children (so qualifying for the residence nil-rate band) and investments worth £200,000.
On death, nil-rate bands can be transferred between spouses, leaving a potential IHT-free amount of £1 million, with tax to pay on the remaining £500,000. At 40%, this results in an IHT bill of £200,000.
Under current rules, we might suggest that you sell your stocks and shares portfolio and move the proceeds into Business Relief-qualifying investments. Once held for two years, they will become exempt from IHT, reducing the taxable portion of your estate to just £300,000 and reducing your IHT bill by £80,000.
The new investments remain in your name so you can sell them if needed, to fund later-life care, for example, or you might use the funds to provide a regular income.
This strategy can also be useful where gifting isn’t the preferred option, or not an option at all. Maybe a blended family or a potential separation make gifting complicated, or you worry about a future loss of mental capacity.
Note: It’s important to remember that investments that qualify for Business Relief are generally considered higher risk. We can discuss these risks with you and ensure that this strategy aligns with your long-term goals, risk profile, and capacity for loss.
Also, tax relief only applies while the invested companies maintain their qualifying status.
Equity Release could free up funds for Business Relief-qualifying investments if you have a high-value home
If you’re over 55 and own a high-value property, you might use equity release to tax-efficiently access the money tied up in your home.
You might use a lifetime mortgage to borrow against the value of your property and repay the loan when you pass away or move into long-term care. Or a home reversion plan could allow you to sell part or all of your home, while you remain living in it, in exchange for a lump sum or regular payments.
Releasing money from your property removes it from your taxable estate, but you might also use the accessed funds as part of a wider IHT-mitigation strategy.
You could gift funds as potentially exempt transfers (PETs) in the hope that you’ll survive a further seven years, rendering the gifts free of IHT.
Equally, you might move the money into Business Relief-qualifying investments, which become IHT-free after just two years.
Note that the above risk warnings apply here, too.
Get in touch
It’s important to remember that risk is inherent in investing and that you’ll need to be happy that your choices align with your profile and capacity for loss. We can help here, so be sure to get in touch if you think you might use Business Relief as part of your estate planning and IHT-mitigation strategies.
Contact us online or call 020 7400 4700.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investments (and any income from them) 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. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Equity release will reduce the value of your estate and can affect your eligibility for means-tested benefits. A lifetime mortgage is a loan secured against your home. To understand the features and risks, ask for a personalised illustration.
