Estate Planning – Protect Your Family Wealth with Business Property Relief

estate planningIt’s natural to want to pass on as much of your family wealth as possible when you die – but inheritance tax can put a real dent in the value of your estate. Your loved ones will have to pay 40% tax on assets above inheritance tax threshold.

The number of families now affected by inheritance tax is at a 35 year high – but there are steps you can take to legally reduce, or even eliminate inheritance tax entirely. It’s a process known as estate planning.

Traditionally, estate planning has involved the use of trusts, gifts and insurance policies to take assets out of the estate, but all these options have their limits. In this post, we take a look at these limitations, and explore how it is possible to utilise investments and ISAs based on BPR (Business Property Relief) to mitigate the impact of inheritance tax in just 2 years.

Trusts and gifting – the limitations

Trusts and gifting do have an important part to play in estate planning – these are useful tools, and, depending on your circumstances, may provide the best strategy to help mitigate inheritance tax.

However, there are two key limitations:

  1. You lose access to your money – permanently
  2. You have to live at least 7 years, or the assets will be included in your estate

One of the biggest risks with these strategies is that you die before the 7-year period has elapsed. At this point, these monies will be liable for inheritance tax at the full rate of 40%. In addition, many people don’t want to give away their money, they want to retain control of their wealth until they pass away.

The alternative – BPR investments

One alternative strategy is to utilise BPR (Business Property Relief) investments. Investments that qualify for BPR can be passed on free from inheritance tax, as long as the shareholder has had them for at least 2 years.

BPR in an investment incentive that’s been around for more than 40 years. It provides relief from inheritance tax on the transfer of relevant business assets, of up to 100%. By investing in businesses that qualify for BPR, via the purchase of shares or an interest in a qualifying company, it’s possible to reduce IHT obligations.

Only certain businesses qualify for BPR – it’s reserved for businesses that carry on a trade, rather than investment, and they must not be listed on any stock exchange. They may, however, be listed on the Alternative Investment Market (AIM).

Today, there are financial companies that offer investment products based on Business Property Relief qualifying AIM companies – and investors can utilise these products to reduce their inheritance tax obligations.

Inheritance Tax-efficient ISAS

Whilst ISAs provide real tax benefits whilst the holder is alive – they are not exempt from inheritance tax. If you have significant monies built up in an ISA, this will form part of your estate, and will be liable for tax at 40%.

It is possible to transfer existing ISA monies into an inheritance tax-efficient ISA. As with a BPA investment, an inheritance tax ISA looks to invest money in the shares of BPA qualifying AIM companies. After two years, money invested in these ISAs becomes free from inheritance tax.

The key benefits and risks of BPR

Like all tax planning tools, BPR investments come with their own benefits and risks:

The benefits

  • Speed – money invested should be exempt from inheritance tax within 2 years
  • Ownership – you retain ownership of your investments, and can access them if you need to
  • Flexibility – you can take income from these investments, withdraw a lump sum, or encash the whole thing if required
  • Simplicity – these are investment products. Unlike with trusts or insurance products, there is no complex legal structure or underwriting required.

The risks

  • Risk – to qualify for BPR, companies cannot be listed on main stock exchanges. This can make them seem like a riskier proposition than listed companies. As with all investments, the value of BPR investments can go down as well as up.
  • Changing tax rules – Whilst BPR investments have been an established part of inheritance tax planning since 1976, tax rules can change.
  • Volatility – investments in unquoted companies or those quoted on AIM (those that qualify for BPR) are likely to have higher volatility. They may be harder to sell than shares listed on main markets.

Before investing in a BPR product, it is always sensible to consult with a financial adviser, who will be able to advise you as to whether they provide the right estate planning solution.

Estate planning support from Sterling

At Sterling, our team members specialise in providing high quality, cost-effective financial solutions for you, your family and your business.

As inheritance tax specialists, we can help you to mitigate your inheritance tax obligations and to protect your family wealth for future generations through effective tax planning.

Estate planning is not regulated by the Financial Conduct Authority.

Tax treatment varies according to individual circumstances and is subject to change.

If you’d like further information on BPR investments, or honest, tailored advice on any aspect of tax planning, then get in touch with Sterling today on 01482 863127, or by emailing