Business relief How it could benefit your estate planning

Normally, gifts made during your lifetime take seven years to fall outside of your estate for IHT purposes.[1] In contrast, BR qualifying investments can be passed on tax free after just two years, provided they are still held at the time of death and continue to meet the qualifying criteria.[2] This could mean paying no IHT at all (a saving of up to 40%) on that part of your estate.

However, the tax rules are changing. From April 2026 you will get 100% business relief on the first £1 million of shares while any amount above this will receive 50% relief. Effectively, what this means is that you pay no tax on the first £1 million and only 20% on the rest.[3]

To qualify for BR, assets must be actively involved in a trading business (not just an investment vehicle). Common examples include:

• Shares in a private (unlisted) trading company
• An interest in a trading business, such as a sole trader or partnership
• Certain land, buildings, or machinery used in a business

Most BR qualifying investments do not tend to pay regular income. Instead, they aim to grow in value. When cash is needed, assets are usually sold, and any gains may be taxed as capital gains (CGT) rather than income. This structure may not suit those who rely on steady income.

What are packaged IHT mitigation solutions?

Packaged IHT mitigation solutions offer a unique combination of business relief and insurance to provide immediate protection against IHT liabilities. They typically invest in a diversified portfolio of business relief qualifying assets, such as shares in unlisted trading companies, with the aim of mitigating inheritance tax.

These products are designed to address one of the key limitations of BR: the two year qualification period. If the investor passes away within that period, the insurance covers the IHT liability. The insurance typically covers around 40% of the net investment (i.e. the IHT bill) and ends once the two year period is over and BR applies. Please note, this has the potential to change from April 2026 depending on the amount invested in BR assets.

These solutions require limited underwriting, but only a few providers offer them, with a cap on coverage per provider. The cost depends on the investor’s age band and a health declaration.

Benefits of packaged IHT mitigation solutions

One of the main attractions of packaged IHT mitigation solutions is the ability to ensure that your investment passes to your beneficiaries free of IHT, without needing to wait the full seven years required for lifetime gifts. Once the two year BR requirement is met, the full value of your investment typically benefits from relief (as discussed, this is set to change from April 2026).

This is particularly valuable for older individuals who are concerned they may not live long enough for standard BR to apply. It also appeals to individuals willing to pay a premium to speed up estate reduction, or those wanting to add an extra layer of tax efficiency to their estate planning.

Disadvantages of packaged IHT mitigation solutions

These solutions are not without their drawbacks. High upfront costs and ongoing management fees, particularly for the insurance component, can significantly reduce the overall benefit. For some individuals, especially those with smaller estates or access to lower cost alternatives, the value may not justify the expense.

Business relief qualifying investments also carry more investment risk. They tend to be less liquid, more volatile, and involve exposure to smaller companies. This may not be the best solution for individuals who aren’t comfortable with high risk investments.

Lastly, the insurance component requires a health declaration and may not be available to everyone, particularly those with serious health concerns or a limited life expectancy. Given these factors, professional advice is essential to determine whether this approach fits your goals and circumstances.

Who are they suitable for?

Packaged IHT mitigation solutions are particularly suitable for individuals with significant estates who are looking for faster IHT mitigation than traditional tools, like gifting or trusts, can provide. They may appeal to those with a shorter planning window due to age or health, as well as to individuals looking to complement existing estate planning strategies.

Those who consider BR for IHT mitigation often turn to packaged IHT mitigation solutions because they are concerned about not surviving the two year holding period. For these individuals, the solution ensures their wealth is passed on free of IHT.

Given the higher risk nature of these investments, a financial adviser can help you assess whether this solution fits your overall estate planning strategy.

How do they fit into a broader estate planning strategy?

When combined with traditional tools such as gifting and trusts, packaged IHT mitigation solutions can offer increased flexibility and diversification. For individuals who have already taken steps to reduce IHT but want to act further and faster, these strategies can be particularly compelling.

Let’s consider Margaret, 78, who has an estate of £2.1 million, including her home, cash savings, and a stocks and shares portfolio. She has already taken several steps to reduce her IHT exposure:

• Gifted £250,000 to her two children (12 years ago)
• Placed £300,000 into a discretionary trust
• Consistently made use of her annual gifting allowances[4]

Despite these steps, Margaret still faces a potential IHT bill. She now wants to invest £400,000 into a business relief qualifying portfolio through a packaged IHT mitigation product. She doesn’t expect to live another seven years and while she hopes to live at least two, she isn’t certain.

If Margaret survives the two years, the full £400,000 may qualify her for 100% business relief, saving her beneficiaries up to £160,000 in tax. If not, the insurance is likely to cover the liability, ensuring her estate still benefits fully.

Final thoughts

Packaged IHT mitigation solutions can be a valuable tool in an individual’s estate planning strategy, but they aren’t for everyone. They are best used as part of a wider strategy and should always be considered alongside financial advice.

Warnings to include:

Don’t invest unless you’re prepared to lose all the money you invest. These are high‑risk investments, and you are unlikely to be protected if something goes wrong.

The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.

The Financial Conduct Authority does not regulate tax planning or trusts.