Business Relief
Business Relief Explained
Investments that qualify for Business Relief (BR) can be passed on free from Inheritance Tax upon the death of the investor, provided the shares have been owned for at least two years at that time.
What is Business Relief?
In 1976 Business Relief (then known as Business Property Relief) was first introduced to allow family businesses to be passed down through generations free of IHT. Its scope subsequently widened and since 1996 it was made available for a range of assets, including limited companies. This means if you buy and hold shares in such companies you could potentially pass on those shares IHT free provided that:
- The shares are held for at least two years and are still held on death
- The company still qualifies for BR at the time of the investor’s death
You could buy as few or as many shares as you wish. There is no upper limit or allowance. Provided the above conditions are met, the whole value of the investment – be it £10,000 or £10 million – should attract 100% IHT relief.
Please note, tax benefits depend on circumstances and tax rules can change.
How could I protect my ISA from Inheritance Tax?
One way investors could continue receiving the ISA benefits whilst they live and protect the assets from Inheritance Tax when they die is to invest in certain AIM shares. Shares in companies that qualify for Business Relief (BR) can normally be passed on free of IHT after two years, provided they’re still held on death and the company still qualifies for the relief.
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Which AIM shares could qualify for BR?
HMRC has set rules to determine the type of company that could qualify for BR. The main requirements are that the company must be trading and must not be listed on a main stock exchange either in the UK or abroad. The most notable exclusions are companies that mainly deal with investments, land or buildings and not-for-profit organisations. However, HMRC does not provide a list of qualifying companies. Instead, it assesses the company retrospectively: when a claim for relief is made (during the probate process) HMRC will confirm if the companies of which the deceased was a shareholder qualifies for BR and whether the shares can consequently be passed on free of IHT. Importantly, to benefit from 100% relief, the company must qualify for BR at the time of the investment and remain qualifying until the relief is claimed. (Our associated Investor’s Champion AIM search site here, https://aimsearch.investorschampion.com/ helps identify IHT qualifying AIM companies.
How can I pick AIM shares which qualify for Business Relief?
One option is to research the shares yourself to establish their investment merit and BR-
qualifying status. AIM-listed companies, when contacted, should be able to confirm if they think
they qualify for BR at that point. You should check this regularly as a company that qualifies
today may not qualify in future.
An increasingly popular alternative is to invest in an AIM ISA portfolio, a ready-made portfolio of
BR-qualifying shares managed by a professional manager.
IHT planning can be complex: if you are not sure please seek advice. Tax rules change and tax
benefits depend on circumstances.
How could I benefit from Business Relief?
You can pick BR-qualifying companies to invest in and put together a portfolio yourself.
However, if you don’t have the time and resources to build your own portfolio and ensure the
companies are and remain qualifying for BR, there are two main alternatives:
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