They’re particularly effective for those coming to IHT planning a little late. BR investments can become tax-free after just two years, making them a quicker solution (in terms of IHT mitigation) than gifting money, which typically takes seven years to leave your estate for IHT purposes.
This week’s blog discusses what BR investing looks like, the pros and cons, and a worked example.
Disclaimer: Business Relief investments are high-risk products and are not suitable for the majority of retail investors. The Financial Conduct Authority does not regulate Inheritance Tax Planning. Inheritance Tax thresholds depend on your circumstances and may change in the future.
The rules
Introduced in 1976, Business Relief was initially designed to help families pass down businesses without facing large IHT bills. Today, BR has evolved, allowing investments in specific qualifying assets to benefit from reduced or zero inheritance tax.
Under current rules, if you hold BR-qualifying shares or investments for at least two years, they can be passed on to your heirs entirely free of IHT.
However, there were some changes announced by Chancellor Rachel Reeves that are due to come into effect from April 2026. These include:
- A £1 million cap for 100% IHT relief: Only the first £1 million of business and agricultural property will qualify for full exemption. Amounts above this will receive a reduced relief of 50% (implying a 20% IHT rate),
- AIM-listed shares: Investments in shares listed on the Alternative Investment Market ‘AIM’ or similar exchanges will qualify for only 50% relief (20% IHT rate), regardless of value.
INVESTMENT OPTIONS
When advising clients, BR investments generally fall into two categories:
- AIM shares: These represent portfolios of BR-qualifying shares that are listed on AIM. Note here, that not all AIM shares qualify for BR - certain trading activities are excluded.
- Unquoted BR investments: These so-called ‘traditional’ BR schemes invest directly in, or provide funding to, UK businesses that qualify for Business Relief. They typically invest in renewable energy projects, ‘the grid’ (reserve power), infrastructure (e.g., fibre networks), and construction. Alternatively, they can provide lending and leasing facilities to small-to-medium enterprises and local authorities to help fund specific projects. While typically more stable than AIM shares, they are less liquid.
Pros & Cons of BR Investments
ADVANTAGES:
- IHT saving: Once qualifying shares have been held for two years, they shall be BR-qualifying and, therefore, fully/partially exempt from IHT.
- Ongoing access: Shares remain in your name; you can, therefore, cash them in if your situation changes, such as a long-term care need for example. However, the central case is that the investments will be left untouched throughout (to achieve the intended IHT saving) and unlisted shares can be difficult to realise quickly (see ‘illiquidity’ point below).
- Growth potential: The monies are invested with scope for future growth. Note here that traditional BR schemes target a steady capital appreciation of 3-5% a year, whereas AIM investments will be more volatile—think of non-quoted BR as the ‘steady scenic route’, AIM as the rollercoaster ride.
- Diversification: Within any AIM portfolio or BR scheme, investment is spread across multiple companies and projects, spanning many sectors. This helps reduce risks in what is inevitably a high-risk space.
DISADVANTAGES:
- Volatility: AIM shares are particularly volatile and can fall faster than traditional investments.
- Regulatory and tax risks: As evidenced by the recent budget changes, taxes and regulations can change. These could reduce or even eliminate expected tax benefits.
- Qualification issues: Firms must maintain BR-qualifying status, which isn’t guaranteed. HMRC will conduct their enquiries to determine whether this is the case, potentially assessing positions individually.
- Illiquidity: Non-quoted investments may take longer to sell if funds are needed.
To manage these risks, we typically advise limiting investments to no more than 20% of liquid assets (cash, investments, and accessible pensions) and spreading investments across different managers and schemes.
Worked example: How BR Can Save on IHT
In certain circumstances and for certain individuals, BR investment can be highly effective in helping mitigate a potential inheritance tax (IHT) liability. Consider the following example:
Molly, 82, has an estate worth £1.8 million. This includes her home (£600,000), savings (£250,000) and investments (£950,000). With her late husband’s allowances, her IHT-free limit is £1 million (within her available nil-rate and residence nil-rate bands).
Her potential IHT liability is calculated as follows:
- Total estate: £1.8 million
- Minus tax-free allowances: £1 million
- Estate liable to IHT: £800,000
- IHT bill: £320,000 (40% of £800,000)
To reduce this, Molly is considering investing £200,000 in BR-qualifying investments:
- She opts for non-quoted BR vs AIM-listed shares, given the superior IHT savings from April 2026 (100% relief on investments up to £1 million),
- For diversification, she splits her investment across two underlying providers, one that invests mainly in renewable energy projects, the other providing asset-backed lending to SMEs and Local Authorities,
- After two years, the new investments are fully exempt from IHT, providing an effective saving of £80,000 (40% of £200,000) – this directly translates to the additional amount to be inherited by her children and represents a 25% reduction in the potential IHT charge on her estate.
Conclusion
BR investments can be powerful but have significant risks and require careful planning. We recommend getting professional advice to see if they’re the right fit for you.
Disclaimer: This blog is for general information and does not constitute advice. The information is aimed at retail clients only. Since I don’t know your specific situation, none of this information should be construed as tax or financial advice. It is not an offer to purchase or sell any particular asset and does not contain all the information an investor may require to make an investment decision. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is correct as of the date it is received or that it will continue to be accurate in the future. We cannot accept responsibility for any loss due to acts or omissions made for any articles.
