Business Relief vs. Alternative Estate Planning Options: Which is Right for You?
When planning your estate, minimising Inheritance Tax (IHT) while ensuring a smooth transfer of assets to beneficiaries is a key consideration. Business Relief (BR) is one way to reduce or eliminate IHT, but it’s not the only option. Here, we compare Business Relief with other estate planning strategies to help you determine the best approach.
What is Business Relief?
Business Relief is a government-backed tax break that lets you reduce or eliminate Inheritance Tax (IHT) on qualifying investments. By holding BR-eligible assets for just two years, they can become fully IHT-exempt.
Who Qualifies for Business Relief?
Benefits of Business Relief
- Significant IHT savings – Up to 100% relief on qualifying investments.
- Potential IHT exemption after only 2 years – significantly lower than the 7-year exemption period for gifts and some trusts.
- BR investors retain ownership of the investment during their lifetime, unlike gifts and trusts.
- Business continuity – for business owners, BR can help pass businesses tax-efficiently to heirs.
- Supporting the UK economy – the main rationale behind the government offering generous tax breaks under the BR scheme’s is due to its provision for investments in UK companies.
Alternative Estate Planning Strategies
1. Gifts & the Seven-Year Rule
Transferring assets as gifts during your lifetime can reduce IHT liability and will be tax exempt, provided you survive seven years after making the gift.
Pros:
- Potential to avoid IHT if the donor survives seven years.
- Usually simple and flexible for non-business assets.
- Gifts between spouses or civil partners are free from inheritance tax, irrespective of when they are made.
Cons:
- No immediate relief—IHT liability applies if the donor dies within seven years, although the rate of IHT tapers after 3 years.
- Loss of control over assets once gifted.
2. Trusts
Placing assets into a trust can help manage IHT and ensure that assets are kept within a family while allowing some control over how these assets are distributed.
Pros:
- Provides structured inheritance planning and asset protection
- May reduce IHT, depending on the type of trust
Cons:
- Some trusts take seven years before becoming exempt from IHT
- Some trusts attract an immediate IHT charge if exceeding thresholds
- Ongoing trustee management and tax considerations
3. Life Insurance Policies for IHT Planning
A life insurance policy written in trust can cover IHT liabilities, ensuring beneficiaries are able to pay Inheritance Tax and receive assets without financial burden.
Pros:
- Provides funds to pay IHT liabilities, avoiding forced asset sales
- Peace of mind for beneficiaries
Cons:
- No tax exemption—only helps to cover IHT liabilities rather than reduce or eliminate them
- Requires regular premium payments
- Can be expensive for older people or those in poor health
- Requires ongoing monitoring as asset values and allowances change
Ready To Start?
Inheritance Tax planning is a complex area. At Best Advice, we have extensive experience of arranging Business Relief products and providing Inheritance Tax planning advice for our clients to support their wider financial plans.
Take the first step towards protecting your wealth today. Complete the form below to schedule your complimentary consultation with one of our experts.